Divorce can be a difficult chapter of life. No matter what the circumstances are, you’ll be forced to face difficult conversations and a lengthy paperwork process to start the next chapter. Although it can be emotionally charged, learning how to prepare for divorce financially is critical. In this article, we'll take a closer look at the steps you need to take in order to set yourself up for a clean financial transition.
How to prepare for divorce: Key financial steps to take
When you are entering the process of a divorce or legal separation, you need to take care of your finances. It is important to protect yourself from the financial repercussions to the best of your ability. Of course, there will likely still be some financial fallout incurred in the divorce process. But if you plan ahead and financially prepare for a divorce, then you may be able to maintain a solid financial footing.
Find your financial records
As soon as you realize that your marriage is heading for divorce, it is a good idea to start organizing all of your financial records. Here is a list of documents to start looking for:
- Tax returns
- Bank statements
- Loan information
- Retirement account information
- Investment account statements
- Employment information
- Social Security Statements
You might find that you’ll need some time to gather and organize the financial records of your life. With that, you should get started as soon as possible. Once you have your documents in one place, you can save yourself time and money in the legal proceedings.
Do an assessment of all your marital assets and marital liabilities
Marital assets and liabilities are any assets or debts that were acquired during the marriage. These assets and debts could be acquired jointly or by one party of the marriage. A few examples include any property that you or your spouse bought during the marriage or any value added to bank accounts.
It is also important to mention that debts acquired during your marriage by you or your spouse will need to be accounted for in your total marital liabilities. If you or your spouse are carrying a large debt burden that was acquired throughout the course of the marriage, that will need to be discussed in the divorce proceedings. Take some time to determine what your marital assets and marital liabilities amount to.
Consider your non-marital assets
Unlike marital assets, non-marital assets are any property that you acquired before the marriage. Although the definition may vary in some states, the property that you had before your marriage will likely remain your property. Likewise, any debt that you acquired before the marriage will likely continue to be your responsibility.
Beyond assets and liabilities that you acquired before your marriage, there are a few examples of property acquired during your marriage that you can claim as non-marital assets. These include any inheritance that you solely received and gifts from the third party. For example, if your parents left you a sizable savings account that would remain yours.
Open a P.O. Box
As you enter into the realm of divorce, you need to open a P.O. box. With this, you will create a safe place for you to securely receive your mail. You can communicate with your legal professionals and accept statements from your new financial accounts at this address. A P.O. box provides some peace of mind for your mail. You won’t need to worry about anyone stumbling into your new bank records or legal correspondence.
Determine your legal fees
The process of finalizing a divorce can lead to some substantial legal fees. Take some time to determine the average legal costs in your area. Once you have an estimate of your legal fees in mind, start tucking aside some savings. You can also consult with different divorce attorneys and compare their rates (and reviews) if you feel you'll need one to guide you through the process.
Open new bank accounts
If you have joint accounts, it is time to open up new accounts that only you can access. It is a good idea to open a checking and savings account at a completely different financial institution. Once the new accounts are open, update your direct deposit information to ensure that your paycheck is not deposited into the joint account.
The type and number of bank accounts you should have will depend on your situation. You can learn more about your bank account options today.
Open new credit cards in your name only
When you were married, you likely had joint credit card accounts. At this point, you should open new credit cards in your name only. With a new credit card, you can establish a positive credit report. Make sure to use your new credit card responsibly as you move forward.
Get a copy of your credit report
Speaking of credit cards, it is important to protect your credit during the divorce process. You can start by obtaining a copy of your credit report. You can check your credit report for free every 12 months. If you see any false information, then take action to resolve the dispute. You will have a better chance of removing the false information if you catch the mistakes sooner.
Change your will
As you undergo this dramatic life change, you need to consider what this means for your will if you have one. You likely don’t want your ex to inherit your assets. With that, you need to take some time to determine your new beneficiaries and change your will. Depending on your state, you may not be able to completely remove your spouse from the will until the divorce is final. However, you should take action on this as soon as possible. If you don't have a will, it's also a good idea to create one.
Update beneficiaries of your accounts
Beyond your will, you likely have accounts that name your spouse as a beneficiary. A few examples include your 401(k), life insurance policy, or brokerage accounts. You should change the beneficiary designation on these accounts as soon as possible. If the divorce is not finalized yet, then some of these changes may require your spouse’s written permission. If that is the case, you may want to consult your legal team before moving forward.
How to prepare for a divorce and protect your emotional well being
Although finances play a large part in divorce, it is important to look beyond that. The big picture is that you are making a major life change. Take some time to envision your new life. Make plans for your future and keep your mind focused on the big picture.
As you move through the process, try not to rush. It can be tempting to rush through the proceedings as quickly as possible. But that can lead to judgment errors that could impact the rest of your life. In this emotionally difficult time, think through your decisions carefully before moving forward.
As a final note, it can be easy to lose sight of your values through this process. Make an effort to keep your integrity intact as you navigate this major upheaval. It can be more difficult to stick to the moral high ground. But when the ordeal is over, you will be happy to have your integrity intact.
The bottom line
The process of divorce can be emotionally draining with major financial impacts. But you can mitigate negative fall out by learning how to prepare for a divorce. Take your time to learn more about your options and don’t feel rushed into any decisions. At the end of the day, you can prepare for a smooth divorce by planning ahead and making careful decisions.