How To Financially Prepare For A Divorce | NerdWallet

Unfortunately, sometimes you do until you don't. Divorce isn't easy. From the emotional stress to the hassle of dividing up your lives, there's a lot to navigate. Look, I can't help you figure out how to split the DVD collection, but I can give you some tips on handling the financial components of a split. Let's look at a few financial affairs to get in order during a divorce. Hey, I'm Nikita, and I'm sure you've heard that divorce can be expensive. The average lands somewhere between $10,000 and $20,000, so getting yourself organized ahead of some of those challenges is key. Before you even start the actual paperwork, you'll want to learn the laws in your state. Well-meaning friends and family may offer advice, but keep in mind that every state and every situation is different, so consult with an attorney before you make any big moves. You'll also want to start tracking your expenses as soon as possible if you haven't been already. This will help you plan for your own personal budget post divorce, but it will also help attorneys figure out how to divide assets and award spousal support appropriately. You'll also want to avoid making any big financial decisions. If your divorce isn't amicable, I'm sure it's tempting to start moving money to different accounts or making adjustments to your life insurance policies, but it's best to wait. Those sorts of legalities will be sorted out during divorce proceedings, and doing them prematurely can get you into hot water later. Check with an attorney about a legal separation if things are contentious, which will help clarify how funds can be spent until the divorce is finalized. You should continue to use your accounts, whether they're shared or individual, just as you usually would. It's also a good time to start gathering up any financial documents. You'll need a year's worth of statements for checking and savings accounts, retirement accounts, investments, credit cards, tax returns, and any other financial accounts for debts and assets. I know the last thing on your mind right now is tax season, but it is something to think about. Your tax profile will be changing once you're a single person, and it can especially change if there are minor children involved. You need to think about how taxes will come into play early on. Keep the tax implications in mind when you're thinking about how you'll split the assets. Splitting assets 50-50 might not work if one assets gonna get hit with a big capital gains tax and the other won't. You'll also want to factor in how custody of the kids will impact your taxes. Generally, if a kid lives at least half a year with a parent that's providing at least half of the kiddos support, that parent can claim the dependent exemption and the child tax credit. There are exceptions, and we all know how confusing tax law can be, so make sure everything is clearly written out in the divorce decree. Your lawyer can help with splitting up the obvious assets, like your home, vacation properties, vehicles, or any other investments, so make sure you bring everything to their attention. This includes other potentially valuable assets. I'm talking about the obvious things, like an expensive art collection the two of you acquired during the marriage, but I'm also talking about the less obvious valuables, like credit card reward points. If your joint card has raked in hundreds of thousands of points, it could mean a lot for whoever gets to keep that asset. Once you've gotten through the divorce, you'll want to be sure to protect your personal finances. Any debt that was yours before you got married will stay yours after divorce. But debt that you took on during the marriage is considered marital debt. Remember that creditors don't care about a divorce if you have a joint debt, and your marital status doesn't show up on your credit report. So if you have co-signed a credit card or mortgage that your spouse takes over after the split, you're still legally on the hook for the debt. If they fall behind on payments, your credit would be impacted too. You'll need to go through every joint account you have and get yourself removed. Remember, a joint account is different from being an authorized user on someone's account that can be easily removed with a phone call or a trip to the company website. Utility bills can usually be updated with a simple phone call. For joint credit cards, you'll need to cancel the card and transfer the remaining balance to a different card in the name of whoever is taking the responsibility for the debt. For a mortgage, you'll need to decide what to do with the property. Sell it and split the proceeds. One of you keep it and assume the remaining debt, or you both keep it. Obviously, selling the home is the cleanest option. You can then use the proceeds to pay off the debt and taxes, along with any other related expenses, and then split whatever is left right down the middle. If one of you will keep the house, a good option could be to refinance so the other party can be removed from the mortgage. This would pay off the shared debt and the spouse keeping the property would have a new loan and use the earned cash to buy off the other person's equity. But let's be real, like it's not always easy for one spouse to qualify for a mortgage solo, particularly if you originally qualified based on two incomes. This is one of the reasons some couples may opt for the third option, which is that they both keep the house. Plus, sometimes the market just isn't ripe for the selling and holding on to ride out a dip might be the best move. And if you have kids, this will allow them to stay in their Also, make sure that you dig into the specifics of any other debts that were taken out after you got married. Things like student loan debts and personal loans can have different rules depending on the details of the accounts and the rules in your state. Once you've split up shared expenses, you'll need to open up your own accounts. If you had an amicable divorce and are on good terms with your ex, I know it seems impossible to think that they might do something or hurt your finances, but just play it safe. Open a checking account in your own name and start having your paychecks deposited there. You'll also need to be sure any automatic payments that are your responsibility that used to come from an old shared bank account get updated to the new account so that you don't risk racking up late payment fees. And consider getting a credit card in your own name if you don't have one already. This can help if you need to build your own credit, particularly since closing a bunch of accounts around the same time can cause your score to take a hit. And just to play it extra safe, change your PIN numbers and online passwords to safeguard your accounts even further. If you haven't already, be sure to put a freeze on your credit with all three major bureaus. I know I've talked about this before, but it's something that you should really consider doing either way to protect your credit. It'll prevent unauthorized accounts being opened in your name. Again, I'm not saying that your ex would ever, but theoretically they do have all the information necessary to open credit and other accounts in your name. Make sure you pull all your credit reports from the three main bureaus just to be sure that you can account for everything on those. Remember, there's a timeline for reporting fraudulent activity. There may also be those other financial ends to tie up once your divorce is final. Are you still insured or were you on your spouse's policy? Most medical insurance policies will allow employees to add their dependents, but once you're no longer a dependent, it's up to you to take responsibility for handling your own insurance. A divorce is a qualifying event that would allow you to make changes to your policies for yourself and your dependents outside of the annual open enrollment period. The basic insurances like medical, auto, and home or renter's insurance are a given, but you should also check in on your life insurance policy. You may opt to make adjustments to the beneficiaries, either changing allocations or removing or adding someone altogether. And look, I know if you're mad at your ex, it might be tempting to just like drop-kick them right off your life insurance policy, but think on it a beat before you do that. If your divorce decree left you financially obligated to them, term life insurance may be a smart move. It's relatively inexpensive and offers coverage for a specific time frame. So those are some of the basics to get you started. I know I buttoned it up like it's a quick and simple thing, but like I first said, divorce isn't easy. I know it's an emotional time and things like insurance or taxes are the last things you want to be thinking about, but keeping those things in mind can really help you in getting the fresh start that you deserve. Need help getting started with a new budget? Don't worry, you know my fellow nerds and I have you covered. Do a search here on our channel for tips on getting started with your budget or hop over to NerdWallet.com for resources. See you there!