Divorce Planning: 7 Ways You Can Financially Prepare For A Divorce

Shot of word divorce wrapped in wedding rings on a pile of money concept for blog: Divorce Planning: 7 Ways You Can Financially Prepare For A Divorce

Divorce is inherently an emotional process, but it also has substantial practical and financial concerns as well. Transitioning from a shared household, especially one with two incomes, to a single income home can be daunting. However, if you take time to financially prepare for a divorce, it can ease the transition and even speed up the divorce process.

How to Plan for Divorce, Financially

Sometimes a divorce complaint comes at you quickly, but many people know that a separation is coming ahead of time. Even if you aren’t certain you are ready to file, it is a good idea to begin financial divorce planning at least a month before separation. Here are some steps to take to financially prepare for a divorce:

1. Assess Your Current Financial Status Before Divorce or Separation

The first step you should take in divorce financial planning is to clearly understand your current financial situation. Often, one or both spouses have blind spots when it comes to the family finances. You may not be the person who regularly pays the bills, or you may not regularly monitor your spouse’s bank accounts. In planning for divorce, get bank statements and credit card statements for each account and go through the debits and credit transactions, documenting your family’s monthly payments. This will help you understand your current financial status before divorce or separation, so you know what assets and debts can be divided by the court.

2. Pull Your Credit Report (and Consider a Credit Freeze)

As you are collecting this information, you should also pull your credit report. Every person is entitled to one free credit report per year from each credit reporting agency. Pulling these before you file for divorce will help confirm all your marital debts. If you are concerned about your spouse opening new lines of credit in your name you can also place a security freeze on your account, preventing creditors from accessing your credit report, effectively stopping anyone – including you – from incurring new debt. Be warned, though, if you expect you will need to borrow money to obtain new housing, purchase a vehicle, or pay your attorney fees, a credit freeze may interfere with your ability to do so.

3. Gather Divorce and Finances Documentation

With your bank account statements, credit reports, and credit card statements in hand, you can begin to gather documentation for all your financial assets and obligations. Part of the divorce litigation process involves exchanging financial information with your spouse in a process called discovery. In many if not most cases “mandatory discovery” is required of both parties upon the request of either. Parties exchange a quite comprehensive list of documents required by the court to enable full disclosure. Whether or not such an exchange is required, it is best to be prepared early in the case. If you choose to use mediation or collaborative divorce processes, both parties will need access to that information to reach a fair result. Gathering the documents yourself can reduce the cost of divorce litigation since your attorney will not need to subpoena the information. You should gather:

  • Checking and savings account statements for the past year
  • 401k, pension, and retirement account statements for the current quarter
  • Investment and stock brokerage account statements for the past year
  • Mortgage balances and payment history for the past year
  • Auto loan balances and payment history for the past year
  • Ledgers for any personal loans
  • Credit card statements
  • Current statements for unpaid utilities, medical bills, or other debts
  • At least the last 3 paystubs
  • Income tax returns for the past 3 years
  • Lists of personal property worth more than $500 (such as firearms, collectibles, boats, recreational vehicles)

4. Prepare a Budget for Your Financial Future

In preparing for your divorce, you need to know how much money you will need to provide for yourself and your children. Child support, spousal support, and property issues can all tie into your ability to pay your bills. Be sure to include all your household expenses, including reasonable amounts for clothes, recreation, and discretionary spending. Having a clear understanding of your budgetary needs going forward will help you and your attorney negotiate a fair and reasonable child and spousal support award or advocate for appropriate awards at court.

5. Avoid Making New Financial Decisions During Divorce

It may be tempting to start building your financial future as soon as you separate from your spouse. However, if you make financial decisions during divorce, particularly if those decisions require you to spend marital assets, it could work against you in the divorce litigation. Once a divorce is started “automatic orders” go into effect which are designed to preserve the status quo until all the financial issues in your case are sorted out. It is better to settle into a temporary arrangement – renting an apartment or maintaining the status quo – while your divorce is pending. This also gives you the chance to thoroughly consider your financial divorce planning with financial advisors and your attorneys before making any financial decisions you might regret after the judgment is entered.

6. Separate Your Finances with Your Spouse’s Consent

While you don’t want to make unilateral financial decisions while your divorce is pending, you and your spouse can agree together to separate your finances and untangle joint assets and debts. For example, you can both agree to deposit your wages into accounts in your own name, or open separate credit cards and transfer balances. This will avoid having your spouse’s financial difficulties reflect poorly on you or your credit. However, separating your finances should only be done with the advice of your divorce attorney. Some transfers may have tax implications that you can avoid if you wait until the judgment of divorce is final.

7. Work with an Experienced Attorney for Divorce Planning

Divorce and finances are closely connected. As you begin your divorce planning, you should retain an experienced attorney with an eye toward your financial future. This can help you make proactive planning decisions and avoid your divorce triggering severe financial problems. The divorce attorney at Lawrence & Jurkiewicz practices in Hartford and Litchfield County, helping people know how to prepare for a divorce financially. Please contact us today online or at (860) 264-1551 to schedule a confidential consultation to see how we can help you.

Categories: Divorce