On television, it all seems to happen quickly - there's no time for preparing for divorce. One partner walks in the door and announces, “I want a divorce!” The other couple has a big fight, and one of them says, “That’s it! I’m filing for divorce!”
In many “real life” instances, divorce is more of a slow burn. Sure there are those times when spouses angrily separate and one or the other moves out. However, in many cases, you see it coming, sometimes years in advance.
Because of this, you want to take the time to be financially prepared – especially if you’re the one initiating the divorce from your spouse.
Every divorce is unique, but there are certain documents and financial paperwork required when you’re filing, whether you’re using a divorce mediator or working with attorneys. It’s wise to get your financial house in order and gather required documentation before you reach out to a divorce mediator or a divorce lawyer.
Every case is different; however, here are some general tips to help you prepare financially for your divorce.
Get clear on your expenses. If you're not regularly involved with the finances or you don't maintain a regular budget, start tracking your expenses. Many people underestimate their spending. We would urge you to grab a notebook and track your spending for a couple of weeks – write down everything you spend, from the newspaper you buy to the groceries you pick up on the way home from work.
When getting financially prepared for divorce, don’t forget to factor in insurance payments (vehicle, home, and health), utilities, groceries, car maintenance bills, etc. You can do this in whatever way you feel comfortable. It could be a small notebook in your purse, or it could be using software such as mint.com to track your spending electronically.
Once you have a good idea of your current expenses, try to determine what your future expenses will be once you’re single. Consider what your living situation will be and the costs involved. Write it down and see if you currently have the income to cover those expenses.
If you feel a divorce is on the horizon, refrain from making any long-term or significant financial decisions. Be ultra-conservative in your spending habits. Prepare now, for the time when you’re single and are responsible for making your own way financially.
If you are currently working, are you making enough to make ends meet on your own? If you are, that's great. Unfortunately, that's often not the case. If you're not able to cover your expenses yourself, what can you do to increase your income? It's time to start thinking. It may make sense to further your education to prepare yourself for a higher paying job or to establish a side hustle. You may be eligible for spousal and/or child support, but eventually, you'll want to cover your expenses on your own. Come up with a plan for how you'll do this.
Know where the family financial records are and gather copies of them. Prepare a financial binder or create an electronic file with all of your documents. You will want to have copies of the following:
If you do not currently have a good credit history, it's time to focus on improving that by consistently paying each bill on time and reducing your debt overall. If you don't have a credit history, it's essential to establish one. Get a credit card in your own name. Make small purchases each month and pay your account off in full. It will limit your credit utilization and show that you are consistent in making payments. A solid credit history is vital for applying for loans and applying for apartments.
When you have a significant change in your life, there are always expenses associated. Whether it's getting married, having a baby, or going through a divorce. There are things that you can do to keep the costs of the divorce itself down. However, even if you don't break the bank on legal bills, there are still going to be costs associated with any transitions you're going through. You may end up moving or needing to replace some furniture or just some money to live on for a while. This is a good time to make sure you have a liquid savings account in place.
You may be wondering about how to handle the financials in your actual divorce settlement. Having a financial professional on your team can reduce your stress while helping you achieve the best possible financial outcome. When facing a divorce, a person's first instinct is often to get an attorney involved. While there's no substitute for sound legal advice, many of the decisions made in a divorce are financial. Having support from someone well-versed in divorce financial planning and analysis (such as a Certified Divorce Financial Analyst) can save you a lot of frustration, not to mention, save you money on legal fees.
Through divorce financial planning and mediation services, we are committed to helping clients make wise financial decisions. If you need support preparing for your divorce, CLICK HERE. Learn more about our services and schedule a Strategy Session.