It is never easy to manage finances, but it gets a whole lot harder when you and your soon-to-be ex-spouse are locked in the middle of a divorce battle. Besides the obvious emotional upheaval divorce causes, if you do not care, the divorce can wreak havoc on your finances as well.
Build Your Financial Plan
There are many reasons why the divorce process can be a stressful experience. After many years of relying on their spouse, people suddenly find themselves without a partner. That means your financial situation will differ significantly from the way it used to be. By engaging in some sound tactics and strategies, you can get through your divorce nearly unscathed. Here are some tips for avoiding the worst.
However, it is possible to structure a plan and take solid measures to protect your finances. By hiring a professional financial consultant and building a plan, you can not only ensure the best possible financial outcome for yourself and your loved ones but also prevent most of the damage the divorce could potentially do with your credit score.
Hire a Financial Advisor
Of course, you need a lawyer to go through a divorce, but not all lawyers make great financial advisors. A highly skilled and experienced financial mind can take you through all the mines in the minefield but, just as importantly, they have been there before and know better than most what’s coming next.
A financial advisor who is also equipped with extensive knowledge of divorce law can lead you through it all carefully and help you avoid the worst aspects of a financial divorce. Most divorce lawyers know financial advisors they trust and work closely with, so ask them for a referral.
On the flip side of that, friends, family members, co-workers and everyone else you know will try to offer unsolicited advice, often based on their experience with their divorce. They will tell you their horror stories and tell you what you should or should not do next. The best practice is only to heed the advice of those you trust. Just listen to your lawyer and your financial advisor because they are the only people whose advice is objective.
Check Your Credit Reports and Your Credit Score
If you hire a financial advisor, they will probably ask you to do this, but you should probably do this first thing, anyway. If your marriage was typical, as a couple you probably accumulated a lot of joint credit accounts, and you may have lost track of many of them, thus doing many financial mistakes.
Now that your marriage is ending, it will be necessary to take stock and determine both where you are and where you need to go. Go over your credit reports with a fine-tooth comb and prepare to increase your credit score to the highest it can be as you begin your new life as a single person.
Know All of Your Assets
In almost all divorce proceedings, it will be necessary to make a complete accounting of all marital assets, also called “community property”. These should be separate from those assets each spouse owns individually. Everything you owned before the marriage is considered to be non-marital assets and other property can be classified as non-marital if both spouses agree that it should be legally regarded as such.
Many different types of property items may include:
- Real estate, such as the marital home;
- Property in which title is held jointly, such as a vehicle or a boat;
- Personal property given to the couple together as a gift;
- Funds in joint bank accounts;
- Non-tangible assets such as retirement plans, work benefits, stocks, bonds and other securities in which there is a mutual interest.
Divorce and Community Property
For the most part, in most states, any property accumulated during the marriage will usually be classified as community property, except when one spouse receives a gift and the giver explicitly indicates that the gift is to be owned solely by one spouse. Community property is what is in play when the court decides to divide jointly-owned assets, which is what happens most of the time these days. This is why having a financial advisor is important; they can help you understand the various factors at play and determine which assets are to be split between the spouses and which are off-limits to the family court.
Sever Your Marital Finances
As soon as you file for divorce, it’s important to stop accumulating debt jointly, as a couple. If you keep racking up common debt, you will make the divorce proceedings even more complicated, and you could do unnecessary damage to your credit. That’s why it’s important to close all joint bank accounts and to open new, individual accounts in each of your names.
It is also vitally important to document everything, including the balances in all of your bank and credit accounts, the dates you closed the common accounts, the terms when you opened individual accounts and complete accounting of every dollar going into and out of the individual accounts. There are many personal finance apps available for smartphones, tablets, and computers that can help you track every detail.