Preparing Your Finances for Divorce

The following is presented for informational purposes only and is not intended as legal advice.

Divorce can be equal parts heartbreaking and stressful, and that's before you even consider the impact on your finances. 

There's no way to make getting a divorce pleasant or even especially easy, but there are things you can do to safeguard your finances and prepare for your new financial reality. Here are some basic tips for prepping your finances for a coming divorce.

Organize and catalog your finances

Before you reach the difficult, legal part of navigating a divorce, it's important that you take the time to figure out exactly what's on the line. What do you share jointly and what do you own outright? 

Grab documentation for:

• Bank accounts
• Retirement accounts
• Tax returns
• Loans and credit card accounts
• Property deeds

Make sure you've got a copy of everything so you understand the full financial picture. It's a good idea to pull a copy of your credit report to make sure that what's being reported matches the records you've uncovered. 

List out assets and liabilities

Whether your divorce is contentious or mutual, it's important that you create a full list of all of your assets and debts, regardless of whether you consider them "yours" or "theirs". 

• Vehicles and property
• Investments
• Savings accounts
• Loans and other debts

Hashing out who gets what comes later. Right now you want to make sure that there aren't any assets (or worse, debts) hidden from you.

Bring in professionals

Divorce can be complicated (and ugly) and how property gets divided can change drastically depending on the laws of the state where you live. It's in your best interests to consult with a divorce attorney who understands the law and can defend your interests.

Similarly, a financial advisor can be helpful when separating joint accounts and preparing for life post-divorce.

You may also want to freeze or close joint accounts to prevent unauthorized spending, but you should consult with your attorney first. In fact, avoid making any major money moves (big purchases, large transfers) without talking to your attorney.

Prepare your post-divorce budget

Your daily financial life is almost certainly going to change drastically during and after a divorce. Start preparing for this by tracking your current spending. What are your needs and what are just wants? What can change easily and what would be harder to change? 

As the divorce process develops you should be able to start forecasting life post-divorce. What will your income look like? Will there be alimony or child support? Understanding what you can afford will help you set a budget to cover your necessities (housing, food, utilities, etc.).

Have a plan for insurance

If you're on your spouse's health insurance plan (or vice versa) things are going to need to change. Make sure you're prepared to transition to a new plan. Don't risk falling uninsured.

Meanwhile, review any home, auto, and life insurance policies. Depending on what happens during the divorce, these will likely need to updated promptly.

Update your will, tax withholdings, and more

Lots of things will need to change in the wake of a divorce. It's easy for some things to get lost in the shuffle. Some things to consider:

• Do you need to adjust your W-4 to account for your new post-divorce income?
• Do you need to change the beneficiaries on your life insurance and retirement accounts?
• Do you need to establish a new Power of Attorney?

Prepare for financial negotiations

One of the hardest parts of navigating a divorce is arriving at an agreement on how to separate all of the many, many things you've built together over the course of your marriage. It can be a painful process. You may want to consider bringing in a trained mediator to help both parties through the process.

At the end of everything, you'll end up with a divorce decree that spells out who gets what and who's responsible for what. Follow the details of the decree to avoid any potential future acrimony or court action.

Keep paying attention to any accounts in your name

Remember, your divorce decree is an agreement between you and your spouse (not your creditors) on how your debts and assets will be divided. The contracts you signed with your creditors cannot be changed by the divorce decree. Whoever signed the original contract with the creditor will still be obligated to pay the debt after the divorce. That means you are still obligated on these debts and the creditors can report the derogatory status of these accounts on your credit bureau file.

As protection, your divorce agreement can include a clause stating that if the assigned debts are not repaid, you would be entitled to indemnification. After the fact, your only recourse may be to file contempt of court charges for failure to abide by the terms of the divorce decree. Keep in mind that still would not relieve you of your obligation on the debts.

Divorce is often the best outcome for both parties, but it's a tough process. If you're coming out of a divorce and struggling to manage your finances, consider taking advantage of MMI's free financial counseling. Our counselors are available 24/7, online and over the phone.