Divorce is almost always painful. However, it can be a relatively easy process where both spouses desire an amicable parting, or it can be hell-on-earth where one or both spouses are out for blood.
Sometimes, even the amicable ex can turn spiteful and downright nasty when the other starts dating, for example. Because you never know what can happen, it’s vital to protect your money and assets from the potential ravages of divorce.
Before You Divorce
Community vs. Separate Property States
Prepare ahead of time if you think divorce is likely or if you already have plans to leave. Find out if your paycheck, the car you purchased in your name, and your retirement account belong entirely to you or are half-owned by your spouse. If you live in a “community property” state, your spouse will own half of everything you acquired during your marriage – including your paycheck.
On the other hand, if you live in a “separate property” state, generally everything with your name on it belongs to you. How property is treated in your state will affect how you proceed with protecting yourself. It can be much easier to protect your assets in a separate property state because ownership is clear.
Open a Bank Account
If you had your own bank account before the marriage, keep that money separate from any joint bank accounts. As long as you haven’t combined it with your spouse’s money for joint purposes, you are the legal owner in the event of a divorce.
If the only bank account you have is a joint account with your spouse, open up your own and start contributing to it. Your spouse can’t drain your individual account the same way he or she could your joint account. However, be aware that if you live in a community property state, whatever you deposit in the new account will be considered a marital asset unless you establish a formal date of separation first.
Especially in community property states, this step is extremely helpful for protecting your income, your sanity, and preparing you to live life on your own. Once a date of separation is established, your spouse can no longer claim half of your income as theirs, or any new assets you acquire with that income.
One way to establish separation is to move out. A move to your own apartment, new home, or even back to your parents house makes it clear that you and your spouse are no longer functioning as a couple. Income received after this date should be untouchable by your soon-to-be ex.
Establish your own credit by getting a credit card in your name only. Do not authorize your spouse as a user or joint account holder. Use the credit card and rewards wisely, and don’t run up huge bills. You might need the card for an emergency in the very near future. If you already have good credit you can look into a rewards credit card, otherwise, you might need to start with a secured card.
Lastly, behave well. Don’t date or fool around with other people. Don’t stay out partying late at night. And don’t speak poorly of or cause major issues with your spouse. All of these actions can come back to haunt you during the actual divorce.
During the Divorce
How to File
If you can afford it, hire a quality lawyer. While the fees may be high, the stakes are even higher. That being said, a good lawyer is simply not an option for many people. Mediation and arbitration are less expensive and less time-consuming options that occur outside of a courtroom. Mediation can make sense for couples on relatively good terms and in agreement on how to split assets and child custody. On the other hand, arbitration involves the resolution of differences by a third, ideally neutral, party. You can also file for divorce directly with the court without a lawyer’s assistance. However, this may be unwise in all but the simplest and most congenial of circumstances.
Change all account passwords as soon as possible. Your email, social media, and financial account passwords should all be changed. When you choose a new password, make sure it has nothing to do with your life together. No family names, birthdays, pet names, or other information that your ex would have knowledge of.
Limit Access to Joint Accounts
Also, review all of your accounts and take note of which are joint accounts. In some cases, you won’t be able to close these accounts until reaching a divorce settlement. However, you can contact the institutions where you have joint accounts and inform them of the situation. They may be able to limit access to the accounts and thereby prevent you or your spouse from depleting them.
Conduct yourself appropriately during all proceedings. Do not speak angrily and avoid saying and doing things that could be used against you in court. Don’t threaten your ex-spouse and don’t run up huge bills with joint accounts. Avoid having conversations alone with your ex during the proceedings. Make sure you have a representative or other third party (not your children) present during any contact. If you act in a way that is above reproach, you will be more likely to receive concessions during the divorce – especially if your ex has been behaving poorly.
Make a personal line item to-do list based off of the following points:
- Beneficiaries. Beneficiaries on your investment accounts (including retirement accounts), insurance policies, bank accounts, and your will need to be updated. Plan to call your broker, bank, insurance company, and your benefits department at work to find out which beneficiaries are listed and if you need to change them. In most cases this will be as simple as filling out a form, but in some cases you’ll probably need your spouse’s signature to remove him or her as a beneficiary. It’s your call. You could attempt to get this prior to the divorce or wait until things are finalized. Then your spouse will be your ex and will have no say in who your beneficiaries are. Procedures to change beneficiaries vary by account type and state law.
- Credit Card Debt. Normally, credit card debt acquired during the marriage will be split amongst the parties. However, try to convince your ex to close joint accounts together. You will still have to pay off the debt together, but that can be done with joint assets or through a repayment plan worked out with the help of the divorce court. If that doesn’t work, call the credit card company and ask to have your name removed from the account. Make it clear you don’t want to be responsible for future charges (you will be partially responsible for charges up to that point). As with everything else during this process, document all exchanges that occur via phone, fax, email, or the postal service.
- Mortgage Debt. You can’t do much about the mortgage until everything is finalized. But you can consider what you will do when that happens. In some cases, it’s easiest to sell the house and split the earnings. However, some couples prefer that one of the partners ends up with the house. If you are the one who retains ownership, refinance the home so it is in your name only and update the title so it reflects that you are the sole owner. If your ex is keeping the home, stipulate in the divorce settlement that the home be refinanced in your ex-spouse’s name and your name removed from the title. You don’t want your credit trashed because two years from now your ex-spouse decides a strategic default is the way to go.
- Other Debts. Most debt acquired during the marriage will be split. However, make an effort not to run up more debt while waiting for the divorce proceedings to finish. Make sure to also pay credit card and loan payments on time. After all, this is your credit at risk as well your ex’s. Use joint assets to make payments whenever possible, but if you must use your own assets to pay joint debt, keep track of it. Many judges will give you credit and arrange matters to reflect your efforts, especially if your ex has been behaving poorly with regard to finances. Once the divorce is final, most joint accounts need to be closed and paid off according to the terms established.
- Your Credit Report. Write a letter to all three credit bureaus to let them know you are getting a divorce and you don’t want to be responsible for debt your spouse incurs. Sometimes an angry spouse will run up credit card debt on a joint account or engage in other activities in order to ruin your credit. Ask that the letter be included in your credit file. This won’t always completely protect you, but it does document your side of the story. If you are worried that your spouse might open new accounts in your name out of spite, call the bureaus and have a fraud alert placed on your credit reports. That way, lenders have to double-check with you before actually approving an account.
If you have children, you probably tried hard to avoid a divorce. You may be feeling guilty and want to do everything you can in order to make them, and yourself, feel a little better. If that’s you, keep this in mind: to take good care of your kids, you have to take care of yourself first. A guilt-ridden parent is more likely to spoil their children which is not good for anyone, children included.
The kids might be more confused than ever and desperately need structure. Too many divorced and divorcing parents aren’t able to properly provide this because they’re fighting, or are emotionally drained by the changing situation.
Get visitation and custody clearly established. Whether it’s initially through a court of law, or by mutual agreement, arrangements should be fair and not changed casually. Where hostility and manipulation are present, it will be best to make this legal and get it recorded in a court of law. That way, the parent with primary custody can’t take visitation privileges away from the non-custodial parent, or threaten to do so. Kids also can’t manipulate the schedule to their advantage.
If you can agree on who pays what and stick to it, this may be better than establishing a formal child support order. If you have been paying most of the expenses in the household, you might be the one paying child support. If you have been a stay at home parent, you may be the one receiving child support. Increasingly, though, many divorce cases involve two incomes. If a support order is pursued, the non-custodial parent could pay much more to support the children than the custodial parent, regardless of income. The calculation varies by state and is affected by the following factors:
- Where do the children spend most of their time?
- How much money does each spouse earn?
- Can the spouse with primary custody earn an adequate income?
If possible, it’s important to have regular conferences, even after the divorce, about what is appropriate to spend on the children, especially if a child support order is not in place. Remember, perhaps the only reason the two of you have to communicate now is for the sake of your kids, so play nice.
Alimony is support to one spouse from the other and is generally awarded when one spouse has been supporting the other financially during the marriage. If one spouse has stayed at home without a job, or worked a low-paying or part-time job, the spouse with the higher income can be ordered to pay support for a certain amount of time. Not all spouses ask for alimony, though. Either spouse is permitted to ask and the court will decide on the merits of the case. Alimony payments can be changed later as circumstances change.
It used to be that alimony was mainly awarded to women. However, with more women gaining financial independence, there are more cases where men ask for and are awarded alimony. For example, I have been the primary bread winner since my marriage, and as a result, my husband would likely receive alimony if we divorced and he asked for spousal support payments.
Getting Good Advice
You might have well-meaning relatives and friends willing to give you advice about money, but there is no substitute for professional advice. Before, during, and after the divorce, seek help from a divorce attorney, mediator, accountant, or financial advisor. Get referrals from the divorced in your social circle. A third party can objectively view your situation and help you make decisions based on your financial needs alone.
Qualify any professional you talk to first. Not everyone who sells their services knows what they’re doing. Though it’s not foolproof, most attorneys worth their title will, unfortunately, charge far more than you’d like to pay. If you’re talking to an attorney at a bargain rate, ask why. It could be that the level of service they offer you is minimal or that they just aren’t that good. And regardless of how great someone might sound or who referred you to them, don’t pay for or take advice from someone you don’t feel good about.
Post-Divorce Finances: Getting Back on Your Feet
Divorce can really take a lot out of you. You will likely have bills to pay and you’ll be adjusting to a different lifestyle. Chances are you will need to cut back on your spending as well. Assess your situation and make a plan to better navigate your new surroundings.
Know Where You’re At
The first thing you need to do is figure out where you are financially. Add up all your debts and take a look at all your expenses. Consider what your income will be and honestly evaluate your financial situation from a pure numbers perspective. If you aren’t sure what you are spending your money on, track your expenditures for a month or two and review bank and credit card statements. Personal finance software and apps like Tiller or Mint.com will help you track your expenses as you begin to get back on your financial feet.
Make a Plan
If you have high interest debts you’re responsible for, figure out how to pay them off as quickly as possible. Using a personal loan through Credible could be a great option. Create a workable and realistic budget that accounts for positive cash flow like income, and expenses like bills and debt payments. It’s also a good idea to determine how much you can set aside monthly for retirement and emergencies.
Your plan should include two parts:
- Frugal Living. Cut back on unnecessary expenses, look for good deals, and try to make your dollar go as far as possible. You might need to downsize your home to a smaller place. Plan your meals around coupons and sales for the week (i.e. extreme couponing). Practice energy efficiency in your home to reduce your utility bills. If you have the space (even a patio will do), consider growing some of your own food with a home garden. There are many ways to be frugal and find extra cash in your budget so that you can live richly without spending that way.
- Increase Your Income. Once you get your spending under control, think of ways to earn a little more money. If a second job isn’t feasible for you, look for ways to earn money from home with side business ideas or utilize passive income investing strategies. Creating such an income can take time, however, so live frugally during the interim. You could even do something as simple as sharing your car through a platform like Turo.
If you had shared investments with your spouse that were divided or if you received a settlement, put the money into investments of your own. Don’t rely on the investment plan you followed while you were married either. The needs you had as part of a couple are different from the needs you have now.
Evaluate your long-term financial goals and create a new investment plan to reflect your situation. A financial professional may be able to help you, but if you can’t afford a fee-only advisor, make sure that you understand exactly how they get paid for providing you service and that you’re comfortable with the setup.
You can start by opening up an investment account of your own through someone like TD Ameritrade or Betterment. Plus, any good financial advisor is also going to tell you it’s important to diversify your investments. You can do this by opening an account with DiversyFund to invest in real estate. You can also open an account with Masterworks to invest in fine art.
Protect Your Assets
Make sure your assets are properly protected. You need sufficient health insurance, car insurance, and homeowners insurance. Health insurance these days can be prohibitively expensive. If you don’t work, or aren’t offered insurance through work, make sure you’re covered on your ex’s plan as part of the divorce proceedings.
You should also have life insurance to make sure your children’s needs will be met in the event that something happens to you. You can pick up a life insurance policy through Bestow for pretty cheap. Coordinate with your ex to determine how your children will be cared for if something happens to one or both of you.
Divorces are usually painful financially and emotionally, and require you to adjust your perspective. No longer are you looking at the world from a team perspective – it’s just you now.
The flip-side, of course, is that you’re presented with a huge opportunity to create the life you want. And you can lay the groundwork for that right now. Don’t try to resolve old differences with your ex during this process. Keep in mind that your goal during a divorce is to split up the relationship and assets fairly and amicably. Old emotions will only get in the way of that and make it difficult, if not downright impossible, to achieve. Do your best to keep a cool head, let go of the past, and look forward to the future. Follow the steps and suggestions above to get you started.