Before You File For Divorce Make Sure You Take These Crucial Financial Steps
Divorce is one of the hardest things that a married couple can face. While there are plenty of ups and downs to be found in the institution of marriage, sadly, many marriages ultimately won't last and the love simply fades. Fortunately, there are remedies to a situation in which a married couple no longer wants to share a joint life. Divorce is the legal process of separating the entanglement started on a couple's wedding day, and it can take many forms. Often, divorce is seen as an argumentative and drawn-out process that sees couples head into the courtroom to do battle with one another. But divorce doesn't always proceed down this path of increasingly vitriolic shots fired back and forth at one another.
Nevertheless, whatever path your divorce ultimately takes, there are a few essential steps that must be taken before paperwork is even filed. Married couples looking to separate from one another will want to place themselves in the best possible position to thrive in the future, even as they look to start over without the other. With these steps — including budgetary math, additional savings targets, and even alternatives to the court approach — you can make the most of this challenging time and set yourself up for future success.
1. Consider settling without legal hurdles
One of the biggest misconceptions about the divorce process is that it has to be ugly, costly, and take place in a hostile court setting. While contested divorces are likely the most publicly understood form of this legal process, there are alternatives that can be less caustic and more equitable for everyone involved. Settling a separation outside of court is particularly valuable for families with young children who don't want to drag these impressionable youths into a messy breakup. In reality, there are three options that can help spouses separate legally without a huge bill and all the heartache that comes with a long and bitter court battle.
Uncontested divorces are the most amicable separations available. This is a process whereby spouses create the outline of a divorce agreement before approaching a legal professional who will make it official. Couples who know they want to separate and can agree on the basic framework of how to achieve this, both financially and in relation to any children or assets like the family home, can work together to create favorable terms for everyone involved.
A collaborative divorce, meanwhile, is a similar process in which spouses communicate with each other to agree on amicable separation terms, but with the help of their own individual legal teams. Finally, mediated divorces rely on the services of an impartial mediator to finalize terms and oversee the separation. Each of these processes requires varying degrees of cooperation that isn't typically present in divorce battles that end in court.
2. Evaluate your assets and income
Marital assets will need to be divvied up equitably between separating spouses. As a result, anyone preparing to file for divorce (or couples planning to collaboratively separate with amicable terms) will need to evaluate the assets they own. Some of these are fairly straightforward like the home you live in and the cars you drive. The income you and your spouse bring into the home also needs to be considered when preparing documentation that lists all of your assets. These categories are easy to think through and don't take much effort to list out. However, other elements of your total assets may be quite a bit more difficult to fully appraise and understand. A collection of Beanie Babies, baseball cards, or rare books, for example, might be a little tougher to take stock of financially.
Similarly, you'll need to evaluate retirement accounts and other investments in order to fully understand this component of your financial picture. The more complicated your assets are the more time you'll need to spend on this part of the process. For some families, investments may only be in the form of stock purchases. But others may include artwork, real estate properties, or even unique goods like vintage wine bottles.
3. Take stock of your marital debts
In addition to your assets and anything else that might fall into the plus column, it's important to evaluate any debts you carry. Marital debts may include a mortgage loan, credit card bills, or even money owed to family members or friends. Generally speaking, debts will be assigned to separating spouses based on a few factors, including who most benefited and who may be better positioned to pay off remaining balances. You might see assets and debts split roughly down the middle but this isn't always the case, especially if one spouse doesn't work.
Another thing to keep in mind is that any debts created before the marriage or in a manner that definitively only benefits one person won't be shared when lawyers and courts ultimately divide up liabilities. Therefore, any debts you may have brought into the marriage yourself will remain with you once it's dissolved.
4. Open new accounts solely in your name
Speaking of debts, in many cases, married couples stop accumulating individual assets and applying for individual credit accounts. For many, the financial project of building a family is a team effort and money is intermingled as a household rather than kept individually. Therefore, anyone who's been married for a considerable amount of time will likely have their credit history intimately linked with that of their partner. Spouses looking to manage marital debts responsibly and set themselves up for financial success in the future will want to pay off jointly owned debts as best they can and close down accounts. This way, one spouse can't take advantage of the other by spending on a joint account and then discharging some or all of the debt onto their partner when the divorce is finalized.
Perhaps more importantly, however, for divorcing couples there remains a lot of life left to live. After the divorce is finalized, it can be difficult to begin financial life anew if you haven't taken appropriate steps. It's a good idea to open up a credit card account or any other type of lending product in just your name before you separate from your spouse. You don't need to use this account for much, but creating a new means of building individual credit while you have the benefit of your spouse's income and your joint assets unscathed is an important step to take before initiating divorce proceedings.
5. Consider filing in a down year
Some people who file for divorce opt to do it in a year that hasn't been very fruitful financially. Admittedly, this is a bit cynical and isn't recommended for those who are looking to separate amicably from their spouse. However, it's worth noting that you may potentially gain favorable treatment in dividing up assets if you begin the process in a year that has seen more financial hardship than average on your balance sheet. If the stock market took a dive or your income has taken a hit (including perhaps a weak bonus payout or even lost wages for some reason or another), you may ultimately end up having to share less of your post-divorce finances with your soon-to-be-ex.
Once again, for anyone hoping to retain any type of positive relationship for the sake of social demands or joint-parental rights and responsibilities, this approach may not be advisable. But in a hotly contested divorce full of vitriol and spite, this approach may offer a bit of a reprieve and is worth thinking about.
6. Scrutinize your current budget
Just as it's crucial to think about your assets and liabilities, scrutinizing the budget you maintain today — i.e., before separating from your partner — is an essential step toward a streamlined divorce process. Your budget will absolutely change once you're legally separated, but one component of a divorce is the attempt to keep lifestyles roughly similar to the way they were prior to the fissure. Evaluating your current budget will help you understand how much money it takes to maintain your existing lifestyle, and it'll give you a clear picture of how much each of you contributes to that budget.
It's also important to think through who pays for what, specifically. If you own your home, one person may end up keeping the property while the other moves on (likely with additional financial assets to offset the home's value, though). It's worth noting who pays the majority of the mortgage expense, as well as other costs associated with the property like groceries, utility bills, and other service and maintenance costs.
7. Don't leave your home if you can avoid it
Importantly, if children are involved in your family dynamic, then the question of who keeps the family home becomes a little more complicated. Often, the person who maintained the majority of your home's finances will have a stronger claim to the property, but it isn't always that simple. Generally, courts want to keep children in their family home so the spouse who will be taking primary responsibility will often remain at the end of the separation. But this can be muddied again if the spouse who ultimately becomes the primary caregiver leaves the home during divorce proceedings.
The best-case scenario will see both partners remain in the home and try to work through the separation without animosity. This gives children a positive example of how to navigate difficult interpersonal conflict while maintaining the same social and financial standard of living that they're accustomed to. Adults can fight, but this doesn't mean children should be dragged into the middle. If things aren't amicable, though, emotions often run high and create a situation in which one or both spouses feel a strong desire to retreat from the conflict. Moving out — even temporarily — throws a wrench into your legal arguments and should be avoided if at all possible. If you do leave, your lawyer will likely advise you to continue paying any bills you have control over, and it's even a good idea to try to contribute something to the mortgage payments if that isn't already your responsibility.
8. Build additional emergency savings
An emergency savings fund is a financial tool every individual and family should prioritize. Creating emergency savings helps stave off the need to rely on credit cards and other potentially expensive financial solutions to demanding situations that may arise without warning. Whether it's a sudden trip to the emergency room after a sports-related injury or the need to shell out cash urgently to replace a flat tire or broken window, emergency savings make this difficulty far less damaging.
An individual reserve of emergency savings is separate from this fund but it's crucially important for anyone gearing up for a divorce. It's worth noting that assets placed into a new savings account during the marriage may ultimately be subject to dispersal between spouses as it was created technically as a marital asset. However, creating a cash reserve for yourself is an essential step for anyone who may be worried that their access to marital funds may be cut off during the divorce.
In circumstances where one spouse doesn't work or each partner makes a substantially different amount of money, financial power can be exerted with ease. Even a partner without a penchant for meddling, or God forbid abuse, may be tempted to slow or stop their financial contributions to joint accounts. Having your own money set aside will give you greater peace of mind during this tough time.
9. Go over worst-case scenarios
In the same vein, even if your partner isn't likely to make things difficult for you during the divorce. it's worth reaching out to friends and family to speak about potential worst-case scenarios. If your partner kicks you out of the home or cuts off your access to bank accounts or credit cards, you'll need a trusted friend or family member to fall back on. Generally speaking, your lawyer will be able to reinstate access to these resources, but this process takes time while changing the locks or freezing an account can be done instantaneously and with vicious consequences for those who aren't prepared.
No matter what your relationship looks like today, the divorce process will almost certainly change it, and not usually for the better. It's important to create a fall-back plan in the event the divorce becomes increasingly hostile over time. Knowing you have someone standing in your corner can make the decision-making process during this challenging time easier and give you greater confidence as you try to navigate your separation with grace and integrity.
10. Organize your financial records
In addition to understanding your income and assets, there are a number of financial records you'll need to find and make copies of. Tax details, employment information, Social Security statements, and any other relevant financial details you can get your hands on can make the divorce process a little more streamlined. The reality is that you may need a wide range of financial and personal documents and details. Having them prepared before you start the divorce process will make it easier to manage as you continue to progress through mediation, court dates, or any other type of negotiations toward a collaborative agreement.
Having to fish through your personal records in the middle of a divorce adds stress and will lengthen the time it takes to reach finality. Organize these documents in advance so that you're completely prepared.
11. Get a PO Box for secure mail delivery
During a divorce, you're likely to receive quite a bit of correspondence in the mail. As you open new bank accounts and credit cards; communicate with your lawyer and transmit official documents to one another; and perhaps even request official copies of things like your marriage certificate, Social Security information, and more, you'll need a reliable and secure way to get your mail. It can be tempting for partners to look at one another's mail if given the opportunity. Your spouse might not open anything with your name on it, but the packaging alone can be illuminating as they try to understand what you're up to during the divorce.
Your spouse isn't allowed to open your mail, of course, but this isn't the only avenue they have when curiosity (or overt snooping) takes root. Whether by opening mail or finding letters among your things, there's no unseeing the contents of a letter once it's been read: There just isn't any way to put the genie back in the bottle. Opening up a P.O. Box gives you a secure place to receive mail that's separate and safe from prying eyes that may occupy your home. This is a good idea for spouses getting divorced, even in the event of an amicable separation that doesn't include a hostile back and forth over assets, children, or any other features of the marriage.
12. Change your will
Married spouses without wills will generally leave all their belongings to their partner in the event of death. After a divorce, an ex may still have some claim to your assets and belongings if you haven't specifically designated other beneficiaries for your estate. Alternatively, those who have made a will will almost certainly need to amend it to update the listed beneficiaries.
In many instances, when getting divorced you'll probably want to alter your will or create one in order to leave your belongings to your children, parents, siblings, or really anyone other than the person you've decided to remove from your life. However, it's totally reasonable if you wish to leave something to your ex, especially if there are young children involved in your relationship. Indeed, everyone's circumstances will be different and there's truly no single, correct way to manage these questions.
Regardless of your wishes surrounding the estate you'd leave behind, it's a good idea to create a will or revisit an existing one as you gear up for divorce. This not only gives you the chance to update beneficiaries but also renew listings of property you own, especially if quite a bit has changed financially between the time you initially drew up your final wishes and the present. It's a good idea to periodically review estate documents like this, regardless of the circumstances you find yourself in. However, in the event of a divorce, it's even more important to think through this process of passing on property to loved ones.
13. Speak with a lawyer
Finally, the importance of reaching out to a lawyer can't be spoken of highly enough. Whether you're approaching divorce as amicable partners looking to officially separate while remaining cordial or your relationship has completely broken down and there isn't a shred of friendship left, a legal expert will help you navigate the ins and outs of the negotiation. Marriage is a wonderful thing that brings two loved ones together, but it also creates a complicated web of entanglements that must be cleaved apart in order to allow partners to move on from one another socially, legally, and financially.
Your lawyer will be able to walk you through the entire process from how to place yourself in a better position to retain custody or visitation with your children to considerations surrounding your home and retirement assets. The truth is that both parties will likely be left in a more difficult financial position than when they started. Therefore, both spouses will typically be looking to tip the scales ever so slightly in their favor. With a legal professional you can trust sitting in your corner, you will be better equipped to handle any curveballs your other half may throw your way.