How to Financially Plan Through a Divorce

Divorce is not something most people plan for as they say “I do,” but nevertheless, it’s something 50% of married people go through. Naturally, it can come with heartache, anxiety, and fear, and the financial damage can also be devastating.

I know that every situation has its unique challenges, but I’ve also learned from friends, family and clients about ways to reduce stress through the process. Below are some key learnings and a few ideas that can help financially prepare someone for divorce, and ultimately this new chapter in life.

1. Get organized

Make copies of all of the financial account statements (checking, savings, brokerage, retirement, mortgage, credit cards, etc.). Keep these copies in a safe place such as a safe deposit box that only you can access.

2. Budget for the break-up

If you are planning to get divorced, you’ll need to budget for attorney expenses like you would groceries, education, retirement, etc. If budgeting is not your strength, look to a financial advisor to crunch the numbers for you. I’ve heard from people who said they’ve stayed in bad marriages because they feel they don’t have the financial resources to break away, but having a plan, support and patience can and will get you there.

3. Prepare to divide the assets and debt 50/50

“We lost $250k fighting the good fight and lost our shirts” — Family friend

California is a community property state. This means everything you two have acquired since you were first married is subject to 50/50 division. Unfortunately, this also includes any debt incurred by your spouse. Consider skipping the courthouse to save both yourself and your spouse money. I know for some this is easier said than done, as you’ll need to come to an agreement on going this route.

4. Review your debts, credit and notify all parties

Once the divorce is final make sure all debtors that are in both your names are notified. In some cases, you can and should relinquish mutual responsibility of debt. For example, one of my clients had her wages garnished by the DMV, because her ex didn’t pay the registration for a car that is still in both of their names. While they are both still liable for the payments, she could have signed a DMV release of liability form to exempt her from the registration responsibility.

Another best practice is to run your credit report semi-annually and look for anything out of the ordinary.

5. Open new accounts

It’s a good idea to open a new checking, savings, and credit card under your name only. Your attorney may instruct you to withdrawal half of your joint funds and deposit them in new accounts. As a single person, you need to also start building your own credit. A credit card in your name can help. Beware, some banks will make it difficult to qualify for a credit card without income if this is your situation. Speak to your advisor about different options available.

6. Open a post office box or mailbox at UPS

It makes sense to have your mail delivered to a secure box that only you can access. This new address should be used to receive correspondence from your lawyer, new accounts, etc.

7. Update your estate documents and beneficiaries

It’s very important to update your medical directive and living will. You can prevent your future ex-partner from making any medical decisions on your behalf or inheriting your assets should you pass away before the settlement is official. If you have any life insurance policies, retirement accounts, brokerage accounts, etc, update your beneficiaries ASAP.

8. Get help, plan for what you can and enjoy peace of mind

If possible, hire professionals (attorney, financial advisor, cpa) and start making plans for your finances and settlement. A financial advisor in particular can forecast the long-term effects of the settlement to see how you might fare financially in the short term and long term. Knowing that your finances are in order and having a clearer vision of your future will also help alleviate stress and bring you peace of mind.

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