No one at all goes into a marriage with the idea that it will end in separation or divorce. But it happens. According to the Center for Disease Control and Protection’s National Center for Health Statistics, the average rate of U.S. divorces and annulments in 2020 was 2.3 per 1,000 total population (45 states reporting). While definitely a decline from the 4.0 per 1,000 reported in 2000, divorce and annulments happen.
Amid the battles for child custody, questions about selling a home, and overall physical, mental, and emotional toll, financial planning at this time might be the last thing on anyone’s mind. But a well-thought-out financial plan is essential to avoid monetary missteps or surprises down the road.
What follows are seven suggestions to help you financially plan for divorce.
1. Close joint accounts and open single ones
One of the first things to do with an impending divorce is to close all joint credit and bank accounts and re-open single accounts in your name. When doing this, be sure your paycheck is immediately auto deposited into the new accounts.
2. Gather necessary documents
Find and assemble all financial records and information. Documents include tax returns, loan information, bank statements, investment and retirement account information, and Social Security statements. These documents will be necessary for the legal proceedings.
3. List assets and debts
Assets of value are anything of worth, like cars, property, and jewelry. This category can also include artwork and collectables. Intangibles, which include patents, businesses, or publishing rights, are also valuable assets. Disclosing assets and their value is required during a divorce; this includes assets you might own jointly and those acquired before marriage. Debts acquired by you and your spouse during marriage also need to be listed.
4. Determine post-divorce income
Even if you’re planning to receive alimony, your income following the divorce will vastly change. Be sure you understand where money is coming from and how the divorce will affect your take-home pay. Keep this in mind as you figure out your earnings. You’ll also need to develop a new budget. There are plenty of personal finance apps to help track child support, medical expenses, day-to-day living costs, and other issues.
5. Change beneficiaries
The chances are pretty good that your spouse is listed as a primary beneficiary on your pension fund, 401(k)/IRA, or life insurance policy. Change this at once and name new primary and secondary beneficiaries.
6. Protect your credit
The divorce itself won’t impact your credit score, but what happens before it’s finalized might. The best thing to do is to pull your credit report and see what accounts are in your name or are held jointly. It could be that a credit line lists both you and your spouse, or your spouse is an authorized user on your credit card. Also be sure to contact creditors to let them know your change of status.
7. Steer clear of non-legal advice
If well-meaning friends and relatives offer advice about your monetary situation, thank them politely and move on (unless one of those friends or relatives happens to be a divorce lawyer). Divorce laws vary by state. Furthermore, each separation is different, requiring a different approach. Consult with a licensed attorney in your state or a financial professional for questions about pre-divorce financial moves.
To summarize, marriages can end in divorce. Proper planning and working with a financial planner and licensed attorney can help minimize any financial damage during the process and after the divorce has been finalized.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice, meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.