Preparing financially for divorce
If you’re facing the breakup of a marriage, you’ve already got a lot on your mind. But amid all the upheaval of divorce, there’s something you shouldn’t overlook: your financial well-being, presently and in the future. The decisions you make now can have a lifelong impact. Here’s an action plan.
Talk to the experts
The facts of each divorce differ, as do the divorce laws of each state. While I can offer general financial tips, I can’t offer legal advice. I’d highly recommend you consult a lawyer (and possibly a financial advisor) where you live. To afford any legal help, you may need to come to an agreement with your spouse about each spending a similar amount from your common funds, as NerdWallet suggests. If legal fees seem unaffordable, inquire with local bar associations to find low-cost legal assistance.
Organize your paper trail
“The first place I recommend people start is to begin gathering financial information,” said Susan Campbell, a certified divorce financial analyst in California, in a phone interview. (Campbell and other CDFAs specialize in financial planning before a divorce is final.) Depending on where you live, you and your spouse may be required to produce tax returns, bank and brokerage statements, credit reports, W-2s, pay stubs, social security statements, insurance policies, and other statements of assets and debts. (You have all these, right?) These records will be used to decide matters such as how to divide your assets, and whether there will be any spousal support.
Talking about money can leave you tongue-tied. My weekly newsletter is full of financial conversation starters.
Figure out your post-divorce financial needs
To envision what life will look like after your divorce, and to inform any settlement you make with your spouse, you need to get a handle on your finances sooner rather than later—especially if you’re the partner who normally kept away from money matters.
- First, assess your current budget. What does your lifestyle cost? What exactly are your assets, debts, expenses, and monthly income?
- Next, make a reasonable projection of how your needs will evolve in the years to come. Don’t forget to include future education costs if you have children. Are your and your spouse’s jobs stable for the foreseeable future? (This can affect any alimony you might pay or receive.) In projecting your budget, remember: When you’re single, you give up the financial benefits couples enjoy. No more splitting housing costs, food bills, and vacation budgets between two people. And forget the savings you used to enjoy from family cell-phone plans, multicar auto insurance, or your spouse’s health insurance. Make sure to account for these increased costs.
- Ask yourself: What do I want to preserve about my current life, and what am I comfortable changing? Once my needs are satisfied, how much will it take to satisfy my wants? How many vacations will I want to take? How much do I see myself spending on clothes and eating out? You may not be able to afford all these wants in a settlement, but knowing the answers to questions like these will allow you to envision the steps you’ll need to take—whether changing your job, or relocating—to maintain your lifestyle going forward.
- Finally, as mentioned above, don’t forget to budget for the divorce itself. The total divorce bill is $15,000 on average, according to Cosmopolitan. An amicable settlement will probably cost less than one that’s litigated at every turn; using a mediator in some cases might help to reduce expenses further. But it’s still going to cost you.
Once you’ve taken stock of your financial life, you might need to make adjustments to your lifestyle—reining in spending, looking for a better-paying job—before the divorce is even final. If you’re expecting it, alimony may not cover all your expenses. Now is not the time to make major purchases, or to take a substantial pay cut at work in exchange for, say, flexibility. Be cautious in money matters until you know how divorce proceedings are going to play out.
Stay on the up and up
We’ve all watched TV dramas where one divorcing spouse quietly cuts off the other’s credit cards, or siphons cash from their joint account. Don’t be that person. “If you do something your spouse is not aware of,” Campbell said, “you’ve just opened up a can of worms. Once you destroy the trust, it’s really hard to get it back.” Such moves may also be illegal. Of course, if you genuinely need to safeguard your finances from a reckless or malicious partner, talk to a lawyer about the appropriate ways to go about it.
Channel your emotions
Try not to let your feelings lead you to make financial decisions you’ll regret down the road. Your heart might tell you to hang on to the family home—it’s where your kids grew up. But when it comes time to repair the roof, fix the plumbing, and pay the mortgage and property taxes, all on your own, are you still going to be happy you didn’t downsize to a more affordable place?
Work through your emotions by talking to friends, family, or a therapist. That way, when it comes to make hard financial choices, you’ll be able to act with a clear head and your long-term interests in mind.
Seeking out the right support from the right sources is key. “I don’t think you can keep emotions out of it, but I’m not the person to be sharing the emotions with,” Campbell said. Get your tears out of the way with friends or counselors, so you can get right to the point when talking to your lawyer or financial advisor—whose hourly rates are likely to be higher.
Keep your eyes on the horizon
The chaos of divorce will eventually subside, but you’ll live with the consequences for years to come. With thoughtfulness and planning, you can emerge from the process in sound financial condition.