Wondering how to plan for a divorce? Here are a few tips to ready your finances.
Going through a divorce can leave both parties emotionally and financially devastated. But financial preparation before and during the divorce can help protect your interests and take charge of your future.
Nearly 800,000 couples get divorced in the United States each year—and it’s not an easy affair.
Untangling months or years of combined finances and assets can get messy. Whether it’s an uncontested divorce or there’s tension between you and your spouse, you’ll want to get your individual finances in order to prepare for the work ahead.
Each divorce process is unique and you’ll want to consult with an expert familiar with your specific case. But if you think a legal separation may be on the horizon, here are some tips on how to plan for a divorce that can point you in the right direction.
1. Gather Documentation
Your records are an important part of your marriage’s financial history. It can take a long time to gather these documents—and the process can be tedious. Be sure to start as early as possible and gather all the forms you might need.
Take note of any individual financial accounts or accounts you share with your spouse. Here are some records to start with:
- Checking and savings account statements
- Credit card statements
- Retirement account statements
- Income tax returns
- Investment account statements
- Recent pay stubs and receipts
- Lists of assets and debts brought into the marriage
- Lists of assets and debts accumulated since the marriage
- Loans (including mortgage, auto, and personal loans)
2. Inventory Your Assets
In the process of collecting your financial records, start to inventory every asset you own.
Keep in mind that individual or separate property includes anything you owned before the marriage, inheritances, or gifts that were given solely to you. Anything else acquired during the marriage is most often considered the property of both you and your spouse.
Make a list of everything that you individually own. When it comes to shared property, you can also start to take a look at items that you hope to acquire in the divorce proceedings.
If you’re feeling uncertain about the divorce and want to make sure you don’t lose your own property, you can take digital, date-stamped photos of your personal valuables.
3. Know the Liquidity of Your Assets
Liquidity refers to how easy or difficult it is to convert an asset into cash. For example, a checking account is highly liquid—you can take cash out of an ATM whenever you need it.
Something like an antique necklace, on the other hand, is illiquid. It will take a lot of time and energy to sell this asset and get to the actual cash value.
In a divorce, it’s important to keep in mind which spouse is receiving liquid or illiquid assets.
If you have a lot of cash flow, illiquid assets won’t be that big of a deal. But if you don’t feel stable enough financially, illiquid assets could land you in hot water. For example, if you receive an illiquid asset, like a house, and you don’t have the money to pay the bills, you might have to sell the house.
Take note of all the liquid and illiquid assets you have and know which ones you’re equipped to handle.
4. Open Individual Accounts
As soon as you know a separation is coming, it’s time to start opening individual accounts for yourself.
To ensure that your information and money remains confidential, try opening an account in a bank other than the one that you’re currently using with your spouse. Open a checking account, a savings account, and a credit or debit card in your name only.
Not only does this let you start building your own finances for after the separation, but you can also start strengthening your individual credit score.
5. Keep an Eye on Your Expenses
It’s no secret that divorce expenses can stack up quickly. As soon as you notice your marriage might be heading towards separation, you need to start reconsidering your budget.
Take a look at all your expenses and income. You’ll soon have to accommodate the expenses that come with divorce—as well as the costs of your new, single life.
How much are you spending and how much money are you taking in? Do you feel comfortable with additional divorce expenses? If not, where can you cut costs and by how much?
In order to start building your savings and getting ready for divorce expenses, you’ll have to keep a closer eye on your lifestyle and cut anything that isn’t necessary.
6. Talk to an Advisor
Whether your divorce is amicable or not, talking to a lawyer or other financial advisor can help you sort out the separation of your personal lives and your bank accounts.
Bringing in professional help doesn’t have to be a sign of aggression. The specifics of a divorce are difficult to handle alone—and an advisor can help make sure that emotions don’t get out of hand.
A financial advisor can help offer you expertise about your current finances—and what a divorce might look like for both parties. You can also get advice on how to best structure your divorce settlement and split up assets.
How to Plan for a Divorce
Divorce can be a long, painful, and emotionally exhausting process. Don’t let finances get in the way of your own personal happiness.
If you want to know how to plan for a divorce, getting your finances in order is the first step towards protecting yourself from even greater hardship. With your financial plans in mind, you can build towards a new life of safety, stability, and security.
Are you ready to get in touch with an attorney to put yourself on track for a fresh start? Call (402) 415-2525 for a free initial consultation to learn more about the legal services we offer.