If you’re thinking about the possibility of divorce, or concerned that one may be on the horizon, we understand that this can be a difficult and confusing time. The reassuring news is, there are simple steps you can take right now to better prepare yourself and your financial life for the rocky road ahead. Here are six steps we encourage you to explore when preparing for the possibility of divorce.
Step #1: Gather and Organize Financial Documents
Helping your attorney (and eventually a judge) understand the full story of your finances throughout marriage means painting a comprehensive picture with relevant documents and statements. It’s likely going to take some time and digging around in order to gather everything you need. Keep in mind that on certain joint accounts or loans, your spouse may be alerted if there’s an inquiry.
You’ll want to gather information on your assets and liabilities including:
- Checking, savings, and investment accounts
- Property you own (your primary residence, vacation homes, investment properties, etc.)
- Cars, boats, and RVs
- Debts like credit card debt, mortgage, lines of credit, and other loans
- Retirement accounts (IRAs, 401(k)s, pension plans)
As you collect your documentation, make note of what’s in both parties' names, just your name, and just your spouse’s name. These will be important distinctions to make during the divorce proceedings and negotiations.
Step #2: Document Current Expenses and Estimate Future Ones
While you’re in the process of collecting statements and documents, track your household expenses closely as well. Go back over credit card and bank statements for the past few months, and include every common expense like utilities, groceries, internet, mortgage, entertainment, childcare costs, insurance premiums, retirement contributions, home repairs, etc.
If you’ll be requesting spousal support (or child support), presenting the judge with your average monthly spending (backed by receipts and statements) can help you negotiate an amount that covers those necessary costs.
Understanding what you’re spending now is also a great starting point for determining what your financial obligations will likely be post-divorce.
Step #3: Check Your Credit Score
Regularly checking your credit score is a good habit to get into, but it is an especially important step to take if you’re headed toward divorce. Pull a full credit report and review it carefully. It’s possible your spouse may have included your name on accounts (like credit cards or loans) that you weren’t previously aware of—especially if you’re not typically involved in your family’s finances.
Knowing what your current credit score is can also help you prepare for future inquiries, for example if you need to rent an apartment, open a new credit card, or apply for a mortgage.
If you’re concerned the divorce ahead may be less than amicable, you may want to put a freeze on your credit score as well. A freeze would stop any hard inquiries in the future, say if your spouse tried to open a new credit card account in both of your names. Theoretically, they could open the account post-divorce without your knowledge, spend money, not pay the balance, and negatively impact your credit. But with a credit freeze, the inquiry would be halted and you’d be alerted immediately to any suspicious activity.
Step #4: Discuss What Should and Shouldn’t Be Changed Now
Try to keep your spending as normal as possible in the time leading up to a divorce. Don’t make any big purchases, drain the accounts, change your account beneficiaries, or open up new lines of credit (if you can help it).
Depending on where you are in the process, pulling money from joint accounts or making changes (such as life insurance beneficiaries) can land you in legal hot water. Consult your attorney before doing anything that may jeopardize your case. Even changes you make to your financial accounts before filing for divorce can impact how a judge divides your property and assets later on.
Step #5: Budget For Costs Associated with Divorce
Divorce isn’t cheap, and the more contentious the process is, the higher the price tag tends to be. The national average cost is around $7,000, but complex divorces that involve larger estates or child custody can run closer to $100,000.1
Expect to spend on attorney fees, court costs, mediation fees, and refinancing (if you plan on buying out your spouse’s half of the family home, for example).
Step #6: And Finally, Surround Yourself With Experienced Professionals
If you’re heading toward divorce, you’re likely facing a long, complex, and emotionally difficult journey ahead. Having the right professionals in your corner can make all the difference in your future financial well-being. Our team at Northstar Financial Planning, for example, uses our combination of expertise to help you understand the financial, tax, and personal implications of a divorce settlement. We serve as your trusted ally, pulling from our knowledge and experience as CPAs, CERTIFIED FINANCIAL PLANNER™ professionals, and Certified Divorce Financial Analysts to talk through your options and help you receive what you’re entitled to.
Along with your attorney, we can help you work through decisions about buying or selling your home, preparing to live on a new income, filing a tax return post-divorce, and more.
If you’d like to learn more about our all-woman team of compassionate and experienced planners, feel free to reach out and schedule time to talk.