You can still have your “happily ever after” after a divorce, but it’s important not to sabotage it with poor financial planning.
Let me be clear: divorce is devastating – in every sense of the word. Emotionally. Mentally. And yes, financially. It might not feel like it right now, but there is always a light at the end of the tunnel.
Regardless of the reasons for the divorce, the chances are that you are in the midst of chaos, a neverending whirlwind of legal documents and heightened emotions, all on top of your day-to-day responsibilities.
This can make it difficult to focus on untangling your financial assets from your partner’s, but this is key to starting the next chapter of your life on the right foot. Cleanly untangling your assets and finances should be a priority during this process.
But how do you focus on your finances when your emotions and thoughts are racing in a million different directions?
Your divorce financial checklist can be summed up into three major categories:
- Knowing where you stand financially
- Gathering legal documents and financial records
- Assembling your legal team
Divorce Financial Checklist #1: Knowing Where You Stand Financially
“Marital estate” is going to be a phrase you hear a lot during the divorce process. Simply put, a couple’s marital estate is all of the assets and debts acquired during the marriage.
Once you know that a divorce is inevitable, it’s critical that you know where you individually stand financially.
This is important because unless you and your divorcing partner can agree on how to divide everything, then a judge will determine how those assets and debts are divided. Judges do this based not on your financial history, but based on your state’s property division laws.
In other words, if your divorcing spouse is responsible for most or all of your consumer debt as a couple, a judge could still divide that debt between the two of you, holding you partially responsible.
By knowing where you stand financially, you can make a fact-based case on how to divide everything, ensuring that fair is fair.
Your first divorce financial checklist will consist of three items:
Assets
Make a list of your assets, accounts, and belongings to the extent that you know them. These assets can be further classified into two categories: (1) marital assets and liabilities and (2) non-marital assets and liabilities.
Marital assets and liabilities are those that were acquired jointly during the marriage. In most cases, these are acquired jointly, but during marriage, one party can acquire assets and liabilities on the behalf of the other.
While every state has its own laws, non-marital assets are generally those that you acquired before the marriage. For example, if your parents gifted you a savings account or inheritance before marriage, this likely will remain yours after the divorce.
In addition to cash in the bank, remember to include retirement accounts, investments such as stock options and pensions, life insurance policies, and home values (including any rental or vacation properties owned).
Debts
Compile the total amounts owed on the mortgage, car loans, home equity, medical expenses, and credit cards.
Most states practice what is called “equitable division.” In these 41 states, debt that is incurred together is split between both parties based on each party’s finances. In the other 9 “community property” states, the assets and debts are divided 50/50 unless you and your divorcing partner are able to come to an agreement.
Regardless of what state you live in, debt incurred on your own, such as credit card debt, goes to the spouse that incurred it. By creating a list of all your debts owed, you can ensure that you are getting your fair share and nothing more.
Expenses
Once you know the divorce is coming, begin tracking your household expenses as well as your personal expenses. This will help you lay the foundation for creating a budget post-divorce. If you don’t already track your expenses, I encourage you to read my previous budgeting articles. A good place to start is learning how to create a visual method for tracking spending.
Remember, if you and your divorcing spouse can’t agree on how to divide assets and liabilities, this decision will be left to a judge. By having documentation of your expenses, you are setting yourself up for a fair split, as judges take your finances into consideration. Otherwise, you might be overwhelmed with responsibilities outside your financial capabilities.
When tracking expenses, look beyond your normal monthly expenses such as groceries, gas, food, childcare, entertainment, and housing. You can include expenses such as vacations and holiday trips, especially if you have kids and do these activities during the summer months. Other seemingly “one-time” expenses such as car repairs can also be anticipated using previous years as a guide.
You’ll want to provide these items to your attorney. Keep in mind that most attorneys charge by the hour. It’s not uncommon for new divorce attorneys to charge $100+ per hour and for experienced attorneys to charge $300+ per hour. With that being said, it’s better to prepare these checklists upfront so you can save time (and money) by giving everything to your lawyer for review at once.
Divorce Checklist #2: Gathering Legal Documents and Financial Records
Once you’ve sorted through your assets, debts, and expenses, you’ll want to gather documentation that proves each of these items to avoid being trapped in a he-said-she-said situation.
Documents and records for your assets might include:
- Wages, salaries, or disability/public assistance
- Bank statements
- Investments (stocks, bonds, CDs, crypto, etc.)
- Pensions
- Vehicle titles
- Life insurance policies
- Patents
- Jewelry
- Antiques
Before handing all of this information over to a lawyer, it’s a good idea to make extra copies for yourself. Don’t forget Murphy’s Law: what can go wrong, will go wrong – and usually at the wrong time.
Making multiple copies of everything (even digitally) ensures that you have the documentation and records necessary to protect yourself.
When it comes to debts, collect statements and documents pertaining to:
- Mortgage / rent payments
- Credit cards
- Car loans
- Student loans
- Medical debt
- Tax debts (back taxes)
- Property liens
- Any other lines of revolving credit/installment payments
- Child support / spousal support from previous marriages
Finally, you’ll need to assess your expenses and provide an average monthly cost. If possible, look at the last 12 months of expenses to create the most accurate estimate possible. Remember to include those “one-off” expenses, such as car repairs, as those can add up.
Common expenses to track before a divorce and as you prepare your future budget include:
- Groceries
- Household supplies/cleaning supplies
- Eating out
- Entertainment
- Insurance (medical, vehicle, life, renter’s, homeowner’s, etc.)
- Property taxes
- Utilities
- Cell phone / internet
- Transportation (auto, public transit, Uber / Lyft)
- Education and tuition
- Gifts and donations
- Monthly contributions to savings and investments
- Child care
- Home maintenance
- Car maintenance
Again, it’s best to compile this information upfront to give to your lawyer. This will save you time, money, and headaches.
The more organized you are and the more documentation you provide to make your case, the better position you’ll be in to protect your financial interests.
Financial Checklist #3: Assembling Your Legal Team
Every divorce is different and has its unique nuances.
It’s not uncommon for well-meaning and well-intentioned family members, friends, and coworkers to provide unsolicited advice. Still, it is important to know when to get professional help.
Hiring a lawyer should not be seen as an act of aggression. Rather, it is for your protection and the benefit of both parties to have a professional, objective eye look at all of the financial details. Remember, the process of divorce is fraught with heightened emotions that can cloud judgment and perception.
The more entangled your finances and income, the more important it is to work with a professional legal team.
For example, many partners open businesses together and have joint business ventures. Situations like this can get extremely nuanced, so having a legal representative on your side is an excellent way to protect your rights. It might seem expensive up front, but the long-term ramifications are worth it.
Final Thoughts
This is a stressful, painful, and emotional chapter of your life – but it’s not the final chapter.
There is a light at the end of the tunnel, a happily ever after that you deserve.
That’s not to say there won’t be bumps in the road. There will be. But you can minimize those bumps and lay the foundation now for smoother sailing.
Now more than ever, it’s important to track your income and spending with budgeting techniques that work.
If you’re looking to connect with like-minded people and find encouragement from people who have been in your shoes, I encourage you to join the TBM Family on Facebook. Remember, no matter how difficult this process maybe, you are never alone!
