Amid the emotional drain of a divorce, it’s easy to succumb to the urge of just getting it over with and move on, while overlooking important details. However, the financial impact of a divorce can have long-lasting –– even devastating –– effects. Though it may be painful to do so, keeping a close eye on your money and preparing your finances for divorce is crucial.
Dividing assets can often be one of the most contentious parts of a split. The more you prepare your finances for a divorce in advance, the less painful the process will be. Careful preparation will help protect your legal rights, avoid costly and time-consuming complications, and you’re less likely to overlook the finer points.
Here are the key steps you should take when preparing your finances for divorce.
Gather All Financial Records
This varies from person to person. At a minimum, your personal information should include your bank statements, retirement account statements, pay stubs, investment account statements, credit card statements, loan ledgers, and tax returns.
The ideal situation is to have at least three to five years of financial documents. Make copies of all your documents. Keep them in a place outside your home such as a safe deposit box or with another family member. This will facilitate divorce discussions and protect you if any record goes missing.
Your spouse might get confrontational and resist your attempts to gather your records after you have filed for divorce. You may want to start gathering information before you file. Sometimes having your spouse’s pay stubs (with their permission) can make things easier when the judge needs to evaluate both of your financial situations during the property division process. However, note that institutions do not need to hide your attempts to gather financial records from your spouse. Even if your spouse refuses to hand over documents, your attorney may be able to get a court order but this will require time.
The process of getting your financial records and personal information can be time-consuming so you may want to start early.
List Your Assets And Debts
A property division checklist can help you establish a clear idea of your negotiating topics during your divorce. Be sure to make a note of which assets are jointly owned and which ones you solely own. A list of debts is also critical, as those will be divided similarly.
List each item you solely own and jointly and write down their value. Take photos of your items, especially when it comes to your valuables, and ensure that they have date stamps. Items may go missing during the divorce process which is why you want to have detailed information of what you own.
Texas does not divide separate property between spouses, which includes inheritances, gifts, or anything you owned before your marriage. Gather any evidence that shows that your items are separate property.
This can include house deeds, property tax information, mortgage loan statements, and insurance policies for houses. Gather receipts for personal items or household items. Find your registration title for your vehicles, insurance policies, and car loan statements. Pets are considered property in Texas. Yyou will need to gather records such as receipts for pet supplies and veterinarian records.
Gather documentation of your life and health insurance policies, your will, and powers of attorney to prove your personal information. If you or your spouse own a business, gather registration information, receipts, tax returns, and information on the payroll.
Make the effort to retrieve as much paperwork as you can even if you can’t find everything.
Avoid Major Changes
Avoid making major changes such as changing your life insurance beneficiaries, Social Security beneficiaries, your will, or retirement account beneficiaries before the divorce is finalized. The court could charge you for contempt for violating temporary orders or award more assets to your spouse. Ask your attorney before you decide to make changes to your assets.
Open Individual Accounts
Once you close joint accounts, turn your attention to opening individual accounts like a bank account, retirement accounts, and investment accounts in your own name and redirect your paychecks. You can also do this once you know divorce is inevitable. This will give you a jump-start on your financial future. You may also want a credit card for future spending and which can build up your credit history.
Consider using a different bank to protect your confidentiality. Change your email address and change passwords. If your spouse had access to your details, they can use it to retrieve your passwords and other sensitive information. You might even want to get a P.O. box so you can receive mail separately.
If your divorce is pending or you are preparing to file for divorce, do not withdraw money from your joint account without the knowledge of your spouse. Do not quietly terminate your spouse’s credit cards. This can cause issues in court if there was a temporary order in place.
It is a valid concern if you need to protect your financial assets from a malicious spouse who can do serious damage. You may consider consulting your attorney before you take steps to safeguard your money.
If you get the family home, ensure that you get the bills in your name only. Ensure you take care of the issue of debt that your name is on even if your spouse has been ordered by the court to pay the debt. The creditor can still go after you if your spouse misses payments and your name is on the debt.
Make A Monthly Budget
Start keeping track of your current household expenses and income. You can use your bank statements to determine what you spend on. Make sure you include one-time expenses such as replacing your appliances, holidays, and new big-ticket purchases. Account for future expenses like childcare, school fees, and college funds if you have children.
Your attorney and the judge can use this information to determine the appropriate division of financial assets and loans, and any spousal maintenance or child support to award. This current household budget can also help you to plan your budget for your new life after the end of your marriage.
Build Up Your Individual Finances
A divorce can cause you to take a severe hit financially, but it can also be an opportunity for both men and women to take full control of your money. Make a list of financial goals you aim to hit and write a monthly budget that will help you reach your goals. The budget can be helpful to ensure you set healthy spending limits that will keep you afloat during and immediately after the divorce.
You might also need to project new expenses that will come with your new life and cut down on unnecessary expenses. A financial advisor may be able to help you get your finances in order.
Build Up An Emergency Fund
One of the first things to do is to build up an emergency fund that can help you manage any unexpected expenses. Have at least 6 to 12 months of cash stored away as soon as you can.
Increase Your Income
You might have to pay spousal maintenance and child support as part of your divorce. In other cases, you may have lost the income from your spouse especially if your spouse was earning more. Increasing your income would be one of your priorities and sometimes this means taking on extra jobs, starting a side hustle, or transitioning into a new career that pays more. This is often temporary until you become more financially stable.
Manage New Household Expenses
You might be living in the family home post-divorce and now have to shoulder all the expenses on your own. Alternatively, you might have to find a new place to stay after moving out.
If the costs of the mortgage loan or maintenance expenses are too expensive for you even if you receive support payments from your ex, you may need to consider selling the house and moving. If you’re finding a new place, make sure the new house is affordable for you. You can often still rent or buy a house even if you do not have a credit score as long as you have proof of income.
Monitor Your Credit Report
Pay attention to any outstanding personal loans and debts on your personal credit report. The termination of your credit cards and changing debt obligations can all have an impact on your personal credit score. Ensure that you monitor your credit report for any unpaid loans that should be paid by your spouse or other mistakes.
Talk To A Certified Divorce Financial Analyst
A certified divorce financial analyst (CDFA) specializes in helping people prepare financially for a divorce and get their finances in order in the long term. Divorce is a legal proceeding that involves an attorney, but you often need to enlist the help of a financial advisor to help you sort out the complex financial issues that occur for both men and women. The CDFA can provide you advice on whether divorce makes sense for you financially even before you decide to file.
It’s important to get advice from experts like your legal or financial advisors. Divorce laws are different between states and your specific financial situation can be very different from someone else you know who has gone through a divorce. Always ask a professional to verify the advice that you read online or hear from other people.
You can secure your financial life if you prepare your finances for a divorce well. Let the experienced family law experts at Sean Lynch + Associates give you advice on your legal case.
Contact us today for a no-cost case review.