Divorce is expensive. For starters, you have the costs of hiring attorneys and splitting up assets, which can be substantial.
There’s also the hard fact that living as a single person costs more. Couples enjoy substantial savings from sharing expenses such as child care, of course, but also the day-to-day costs of living.
This is not to say you shouldn’t divorce, only that you should do it with careful thought to the consequences. Make sure that, since your standard of living probably will drop, you do all you can at the outset to minimize the financial damage.
Here are 10 steps to take as soon as possible if you see a divorce in your future:
1. Talk to a lawyer
Consult with an attorney immediately, even if you don’t intend to be represented by a lawyer in the divorce. If you and your spouse are cordial, that’s great. But you need to know your rights and options.
If you don’t have money for an attorney, there are options:
- Legal Services Corporation: Links low-income people with local Legal Aid offices offering free or low-cost legal assistance for civil (noncriminal) matters.
- StatesideLegal: This nonprofit organization offers legal guidance and advice for service members, veterans and their families. Use this map to locate legal advocates in your area.
- LawHelp.org: Connects low-income people with local legal aid and public interest law offices, information about legal rights, court forms and information, self-help guidance, links to social service agencies and more. Use this map to locate resources in your area.
- Law schools: Some law schools conduct free legal clinics for the public, staffed by law students and supervised by professors. Find one near you in the Association of American Law Schools directory of member schools.
- Bar associations: Professional organizations for lawyers can help you find legal help, including free services. This site provides listings for each state.
Seeking out a lawyer may make you feel like you’re assuming the worst about the process. But even in an amicable divorce, you need to take every possible step to protect yourself.
Divorce is an emotionally volatile process for both parties involved, and a spouse possesses valuable personal information, like your Social Security number, birthdate and other identifying details. Bitterness can make people do the strangest things.
2. Pull your credit reports
You are allowed three free credit reports each year. These show all credit accounts that exist in your name alone and jointly with someone else. Watch for:
- New accounts opened in your name.
- Changes in your credit accounts. Unexpected changes are a tip-off to possible identity theft.
Your credit score can be damaged if a spouse or ex-spouse fails to pay joint bills. Read “Marriage and Credit: 6 Common Myths” for more information.
3. Close and monitor joint accounts
Sometimes a divorcing spouse will move money from joint accounts to an individual account, making it difficult or impossible for the other spouse to recover the cash.
The spouse who is behaving badly in this manner then can run up debt on joint credit cards, for which the other spouse is also responsible.
The Consumer Financial Protection Bureau says:
When you have a joint account, each account holder is responsible for the full amount of the balance. The card issuer can seek to collect the amount due from either account holder.
Ask your spouse to help close or freeze your shared financial accounts, including credit cards, joint bank accounts and lines of credit. If that’s not possible, see if you can do it on your own. You’ll find the account rules in the contract you signed when opening the account. You can look for a copy on your bank’s website or ask the bank to help.
Also, be sure to remove your spouse’s name as an authorized user from your personal accounts.
Some divorcing spouses leave one joint account open to fund shared expenses, especially costs related to children.
However, limit yourself to just one joint account if possible. Watch its activity regularly by requesting the balance and most recent transactions from an ATM or bank branch or by viewing the account online.
4. Open new accounts in your name
If you don’t have accounts and credit that are solely in your own name, open them now. To avoid confusion or errors, use different institutions than the ones your spouse uses. (To learn more, read “5 Tips to Help College Grads (or Anyone) Build Credit.”)
Obtaining credit before divorcing could allow you to obtain a higher credit limit that is based on your joint, pre-divorce income.
Also, establish your own personal bank account. This gives you privacy and a way of funding personal expenses, including those related to the divorce.
5. Track down and document the money — all of it
It may be hard to focus on the future when the present is filled with intense emotions. But locating every single marital financial resource is crucial for ensuring your future.
Write down information about:
- All accounts and assets held jointly and individually, noting the balance, date, account number, authorized users and contact information for each bank or creditor.
- Incomes, property, retirement plans and all other assets owned jointly and individually, including vehicles, homes, jewelry, furniture, brokerage accounts and insurance policies.
Download or photocopy statements and documents pertaining to all accounts, assets, bills and debts. Organize everything in a file cabinet. Include:
- 401(k) statements
- Insurance policies
- Real estate purchases
- Mortgages and refinances
- House appraisals
- Brokerage accounts
- Money market accounts
- Tax returns
6. Consider hiring a divorce financial analyst
Interview several specialists, which could include lawyers, accountants or financial planners, who can help you lay the groundwork for your financial split. (There’s even a certification for people who specialize in the finances of divorce: The Institute for Divorce Financial Analysts offers a directory of certified practitioners.)
Ask about their training, experience and expertise, and examples of how they’ve helped clients save money.
A divorce financial specialist might help with your settlement by:
- Locating assets, including hidden assets
- Ensuring that your information about family finances is accurate and complete
- Developing a long-term forecast of the financial consequences of your divorce, including retirement needs, tax liabilities and benefits
- Developing a realistic household budget including expenses like life insurance, health insurance and cost-of-living increases
- Appraising or valuing assets
- Preparing financial affidavits describing financial and tax implications of various divorce settlement options
- Mediating a financial agreement between ex-spouses
7. Get your name on the deed
Make certain your name is on titles and deeds of property you own together. Regardless of whether or not you are contemplating divorce, this is important for every married person to do in case of a spouse’s death.
Many states treat property purchased during marriage as marital property. But laws vary, depending on whether you contributed financially to a purchase and how it was used.
8. Change beneficiaries and update your will
When you buy insurance or stocks, or open a bank account or retirement account, you name beneficiaries who will inherit the asset if you die. These are powerful legal documents that take precedence over your will if there’s a conflict.
If you don’t want your spouse inheriting your assets, change beneficiary designations.
Don’t forget to update your will, too.
9. Make a budget and a financial plan
To live on a diminished income, you’ll need to know how to budget. A budget also will help in establishing your needs when negotiating a divorce settlement.
Don’t forget to plan for college tuition, child care, children’s lessons, sports and activities, and your own retirement, taxes, transportation and housing.
If your divorce settlement will include lump sums from property sales, alimony, pension rollovers or selling other assets, hire a fee-only financial planner to help make a plan for managing the money.
10. Educate yourself
By now you see what is at stake for you and your kids. Learn all you can about divorce before the process begins.
One place to start is Divorcenet.com, which is hosted by Nolo, the legal publishing company. It has links to each state’s divorce laws, as well as articles and answers to questions about the legal and financial aspects of divorce.
Have you been through a divorce? Share your wisdom with us in comments below or on our Facebook page.