Divorce is an awful thing, but if you’re reading this, you probably don’t need anyone to tell you that. You already know. Nobody gets married and expects to get divorced. It happens, and it usually happens for a good reason.
One of the last things you want to think about in the midst of a divorce is, “What’s going to happen with my finances?” However, it’s a necessary question. How do you plan to divvy up assets? What about that joint bank account? Are there fees that need to be paid for lawyers, child support, or alimony? Are you financially stable enough without the support of your spouse?
It’s a lot to deal with during an already difficult time in your life. To help get you started, here are the basics you need to know about divorce and your finances.
1. The More Amicable the Divorce, The Easier It Is On Your Wallet
Your marriage didn’t work out, but, if you can still salvage a relatively positive relationship with your former spouse, it’ll be easier on both of you emotionally, mentally, and financially. Make peace with each other as best you can, despite the tensions that caused the split. It’ll save you money and heartache down the road.
A long, drawn-out legal battle will be your biggest expense. If you can avoid that as much as possible, you may make it out with your savings account not fully depleted. As it is, divorce is expensive.
This is where a mediator is a good idea. They’re less expensive than lawyers, and they can help you reach an agreement for the more difficult arguments in the divorce process. This’ll keep you both from reaching overly-emotional points where you start screaming at each other and nothing gets solved. It’ll also nail down the terms of your divorce outside of the courtroom so all the lawyers have to do is make your decisions official and binding. A mediator is helpful in divorce negotiations for emotional as well as financial reasons.
Do your best to make this divorce as peaceful as possible, regardless of the grudges you hold for each other. You’ll build less resentments if you can both get through the divorce process without being petty or argumentative. Less resentment equates to less money wasted in the long run.
2. Dividing Assets
It can be frustrating when two people are trying to establish what’s owed to them. The lines can get blurry when you’ve been sharing your lives (and money and stuff) together. This all translates into hidden costs.
Generally speaking, the smartest financial decision is to sell your house and split the earnings evenly. That way no one is resentful over having to maintain the house on their own.
It’s also usually healthy for you both to leave behind the home you shared together and get a fresh start. Even if you’re only moving down the street, ditching the house is definitely a great option.
Shared assets are a little trickier to divvy up than physical properties. You could liquidate these assets and split the cash from the earnings, but that’ll require you to pay a large chunk of fees or taxes, so you won’t necessarily be earning back what you originally paid. In this instance, you might just be making whatever cash you can, even if it’s a net loss.
The alternative would be to sign items over as you see fit. This is another discussion that can be aided with the guidance of a professional, unbiased mediator. You can sign over portions your asset portfolio to each other in a manner that you think is as fair as possible.
Other Shared Property/Value
That beautiful kintsugi vase you bought together is worth a few thousand dollars, and you each want it. What do you do? You may claim sentimental reasons, but the value of the property is always going to be an issue when it comes to dividing up shared things.
If one of you truly feels like you’re getting stiffed in divvying up assets, you may need to bring in an appraiser to assess the value of the shared item.
Debts and Loans
One of the less-positive things that you have to figure out are debts and loans. You need to enact a plan for how you want to deal with those together. Finding a solution to dividing the debt should be one of your biggest priorities when it comes to finances and divorce.
Even more so than splitting up the beneficial and lucrative parts of your marriage, splitting up debt is one of the most important steps as well. Continue to make payments on debts, despite all the costs from the divorce. If you put your debt payments on hold due to everything that’s going on, you’ll both only sink further into debt and owe even more money.
3. Adjusting To Your New Budget
You’re both probably going to be significantly poorer after the divorce. Sorry, but it’s true. You’ve grown accustomed to the extra cushion of your spouse’s income, and now you’ll have to adjust to life without it. Even if you were the primary breadwinner, you’re going to have less money than you started with, thanks to legal fees and divorce costs.
On the plus side, you’ll each probably have one less person spending your money. Regardless, your financial situation has been permanently altered in some way, and it’ll take a while to get used to your new reality.
Now is the time to start from the beginning. Completely toss out the budget that you had when you were married. You need to do a full overhaul of your finances. Your priorities have probably changed, and your finances need to reflect that.
Start by reanalyzing your personal financial goals. Even if the end goal remains the same, the path to get there will probably be different. For example, you still want to save $50,000 for retirement by the time you’re 70. Now you don’t have the help of your spouse’s financial contributions to that goal, but also you don’t have to worry about supporting them on their retirement fund. You’ll probably have to contribute more to your monthly savings in order to meet that goal, but you could also adjust that number to reflect your changing needs.
The cold truth is: you’ll probably have to make some serious changes to your spending and saving habits. Most likely, you’ll have to trim down your budget while also putting more away in savings. Things will be different, but you’ll adjust with some time and effort. If needed, consult a financial counselor to help guide you.
4. Shutting Down the Shared Things
Here’s a basic checklist for dissolving all shared accounts:
- Close out all your joint bank accounts.
- Cancel and cut up all shared credit cards.
- Update your will.
- Make the necessary changes to your life insurance, legal documents, last name (don’t wait on this one, changing your name after-the-fact is significantly more cumbersome), driver’s license, emergency contact files, or other policies that are linked to each other.
- End services to utilities that are listed in both your names, and figure out what to do with the bills.
- Reroute mail to your new addresses.
It’s also probably wise to change the security information on everything. Change your bank pin number, get a new debit card, and even consider changing the passwords on all your online accounts like PayPal, online bank account log-in, email, or even social media.
Even if your divorce was amicable, it’s just a basic safety measure to remove access to all your personal information. You were married; they probably know your blood type, social security number, and the name of your high school crush. It’s not unreasonable to change all sensitive information in order to protect yourself.
Looks like it’s time to close out that shared Netflix account and get your own!
5. Be Prepared to Change Your Lifestyle
You’re going to have to adjust to your new financial situation. In time, your lifestyle will change to reflect that.
This probably means that you’re going to have downsize in addition to changing your budget and spending habits. You might not be able to afford a house on your own. Be ready to move back into an apartment or even get a roommate.
You may need to downgrade your car, or sell off some assets to make back some of the money you lost in the expensive divorce processes. Things are going to be different now without your spouse. Hopefully in time, they’ll even be better.