ONCE YOU REMOVE LOVE and emotion from a divorce equation, pretty much all you have left is money.
So if your marriage is coming to an end, or appears to be, you’d be wise to take a number of financial steps – before, during and after the divorce – to make sure you come out of it OK.
Financial Steps to Take Before Getting a Divorce
Get organized. That is, if you’re the one thinking about a divorce, or you know or suspect your partner is going to bring up the topic, this would be a good time to start thinking about your financial portfolio.
“Make a list of all of your accounts and your spouse’s accounts, to the extent you know them,” advises Elysa Greenblatt, a divorce lawyer in New York City. She owns Greenblatt Law, a matrimonial and family law firm.
“Sometimes one party is in the dark about finances. If that person is you, do some investigation at home to see what you can find. Copy old tax returns and any account statements you can find,” Greenblatt says.
Greenblatt suggests that if you are planning on divorcing, “figure out which funds you will be able to access once you announce your intentions. To the extent possible, make sure you have enough to get by while you figure out strategy with a lawyer.”
Think about Social Security. Bruce Tannahill is the director of estate and business planning with MassMutual. He points out that you can receive Social Security benefits on an ex-spouse’s Social Security record if you’ve been married at least 10 years.
“If the marriage hasn’t lasted 10 years but is close to the 10th anniversary, consider whether waiting until you’ve been married for at least 10 years for the divorce to be finalized,” Tannahill says.
It should be noted that by doing that, you aren’t hurting your eventual ex’s ability to collect Social Security.
Think about financial commitments that you both are planning on making. Tannahill also suggests not doing anything big right now, if something big will require both of your incomes, like buying a house.
Apply for a credit card in your own name. With less income coming in and all of the financial chaos that may soon ensue, it may be more difficult for either party to get one after the divorce, according to Tannahill.
Think about how much the divorce will cost. In other words, can you do an uncontested or collaborative divorce and minimize your use of an attorney?
“Even in an amicable divorce, the process will inevitably cost more than you anticipate. There will always be factors beyond your control – delays in court proceedings, or a spouse engaging an attorney who is more litigious than you expect,” says Amanda Shuman, a family law attorney and founder of DangerLaw, LLC, in Newton, Massachusetts.
“Be prepared,” she says. “Also keep in mind, the court is a tool, not a weapon. The courts can help you get resolution on issues, but fighting for fighting’s sake is expensive.”
Financial Steps to Take During a Divorce
Continually monitor your expenses. Of course, you should do this all the time, whether you’re divorcing or single and never plan to marry. But this is a time to be especially on guard that your spending stays under control.
“Continue framing decisions around two factors – your goals for your family and what you can realistically afford,” Shuman says. “Remember that your budget will have to stretch across two separate households, and that will add complexity.”
She adds that during the divorce process, you will likely constantly be recalibrating your budget.
Document use of marital funds. In other words, if your soon-to-be ex is spending money that belongs to both of you in irresponsible ways, you may need to point that out later, if you’re going to court, Tannahill says.
Talk to your human resources representative at work. Assuming, of course, that you work at a company with an HR department. Tannahill says that you’ll want to “check the impact of divorce on employment benefits, especially health insurance.”
Save your money. This isn’t the time to celebrate your divorce with a lot of expensive purchases. Sure, be good to yourself, but try and save your money, urges Kristine Stevenson Seale, a financial coach who owns Advocate Financial Coaching in Temple, Texas. She is also an IRS enrolled agent and a tax preparer.
“Get on a strict monthly spending plan, also known as a budget,” Seale says.
She suggests using a budgeting app – there are plenty out there, although she likes EveryDollar.com (there’s a free version or a $129.99 per year version).
This isn’t the time to spend like crazy. You may have attorney fees to pay. You might suddenly have to move. Any number of surprise expenses could crop up.
Get your own checking account. If you don’t have one already, this is the time, says Amy Richardson, a Denver-based certified financial planner with Schwab Intelligent Portfolios.
“Take action with your existing accounts. Close and reopen new bank, credit and brokerage accounts where applicable,” Richardson says.
Think about your retirement accounts. “Divorce can impact your retirement trajectory and other long-term goals and risk preferences, so it is crucial to revisit your investment portfolio to readjust and rebalance,” Richardson says. “Also consider how divorce may impact your retirement accounts. This typically depends on the divorce settlement as well as when the accounts were established, state laws and any preexisting agreements like a prenup.”
Financial Steps to Take After a Divorce
You may need to make changes to existing documents and accounts. This is especially true if your name is changing.
“This should include name changes with your employer, the Social Security Administration, DMV, bank and investment accounts, insurance agencies and creditors,” Richardson says.
She adds that you will also want to think about things like a will and estate plan, beneficiaries on accounts and life insurance, property titles, credit reports and tax-filing choices.
Don’t get too complacent. Seale warns that she has seen that happen to many divorced individuals, where they think they have a financial arrangement worked out with an ex, but unfortunately, the ex doesn’t do what they agreed to do.
Seale used to work at the IRS, and says that some spouses will agree to make car loan payments for the ex, who is still driving the car. But sometimes they will stop.
Worse, if the car payment isn’t made, but the car title is under your name, the IRS will consider your repossessed vehicle as debt cancellation, according to Seale. “Therefore, it’s income you claim on your tax return,” Seale says. This is another reason why it’s so important to be careful to take the right financial steps before, during and after a divorce.