When it comes to divorce, the legal processes involved have to do about financial separation more than emotional resolutions (Mercer). You might not be sure about how to begin preparing your finances for divorce. This article will talk through some of what is needed to ensure a fair division of money and assets through the process of a divorce. We hope to give you some clarity on how to prepare your finances for divorce.
The steps involved are as follows:
- Know your financial situation
- Inventory household items
- Have credit in your own name and have a copy of your credit report
- Discuss the possibility of closing marital (joint) accounts
While this covers the basic what-to-do, knowing that there are financial analysts available to assist and help you prepare can take the weight of the situation off your shoulders. Here at Divorce Financial Solutions, we are looking to help you the best we can if you choose to hire us to advise you.
Know your financial situation
Knowing the status of your financials is critically important – this includes knowing assets and debts, what pension plans are in place, and having tax records, but also many more things. In a divorce, it would be ideal if couples, their lawyers, and their financial advisors freely share this information when seeking a resolution.
To prepare yourself, make copies of any documents that may be relevant. This includes pay stubs of both you and your spouse, tax returns from the last five years, bank and credit card statements, deeds to any land or property you may own, stock certificates, and all mortgage and loan information. As well, be sure to have record of retirement plans, business interests, evidence of debts, trusts, insurance records, and safety deposit box record. It may seem like a lot, but when in doubt, make a copy of these items so you have it if the time for them arises. Be sure to label every document with what it is so that, when shared, your lawyers and financial advisors know what they are looking at.
Inventory household items
Taking stock of the belongings you acquired during your marriage can affect you emotionally when you prepare to go through them, but it is a necessary evil. We recommend making a detailed list that includes photographs and receipts if you have them. Photographs will establish possession of an item if anything disappears during the divorce process. Receipts establish an exact value of an item’s worth rather than guessing. Whilst preparing your finances for divorce, knowing what is yours alone and knowing what you might need to replace allows you to better plan for your future.
Get your credit report and have credit in your own name
By having your credit report, you will know whether your credit is currently good or bad, you will know what accounts are owned jointly with your spouse, and you will know all of your currently open accounts. You can use your credit report to evaluate your payment history and establish credit worthiness. This can come in handy if you need to make any big purchases to establish your life after separation.
In today’s world, it is necessary to have a valid credit status. It is possible that you did not have any credit accounts because it was done under your spouse’s name. However, when it comes time to be financially independent from your spouse, it can hurt you to not have your own independent status.
To start, applying for credit cards or a personal loan from a bank can establish credit immediately. The credit cards mentioned prior can be department store credit cards. Those these have small lines, by using them and paying off balances, you establish a report of “good credit”.
If in your relationship, you already had good credit, be sure to do what is necessary to maintain that. Make sure any remaining joint accounts continue to have their balances paid if you and your spouse have divided payments. Outstanding balances can lead to negative marks on your credit report, and even if you didn’t make the purchase, because it is a joint report, you are still liable for what is owed. If joint accounts are not used, or you are looking to divide from your spouse, take the initiative to close them.
However, if in your relationship you had poor credit, take the time to address that issue. If there are any incorrect items to dispute on your credit report, fill out a dispute form to have the claim investigated. If these items are correct, you can add a statement to your report explaining the situation. While it may not fix everything, you can begin to mend your credit. Be sure to take the time to pay off unpaid bills and keep current on your continuing payments – this is the best way to fix bad credit.
Talk to your partner about closing marital (joint) accounts
This assumes you also have your own individual account. While preparing your finances for divorce, if you do not already have one, we suggest opening your own independent checking account. You can manage your money and income post-separation and establish an account to receive payments for alimony or child support, if those are necessary in your situation.
In the best circumstance, the best way to handle joint accounts is to discuss closing them with your spouse and working out an arrangement you both deem as fair. However, this is not always the case. If you cannot speak to your spouse, you have a few options. One that makes sense is withdrawing half of the account’s balance and closing the account, leaving your spouse what remains. Some people find it necessary to take the entire balance to prevent their spouse from doing the same – in some circumstances, there are valid reasons for this, but it should not be done unless it is the only option. These reasons include knowing your spouse will not pay you your deserved child or spousal supports, your spouse has been financially irresponsible in the past, your spouse may try to hide the money, or the money in the account was established as a gift solely to you. However, if you do decide to withdraw all of the money, you should preserve it unless it is completely necessarily.
How to ready yourself and proceed
Taking these necessary moves can feel daunting even when you know that the divorce is inevitable. If you do not know how to move forward because you do not understand your finances, know that there are options and resources to help you. Financial analysts will take the time to explain your assets and debts to you if you take the initiative to seek one out. We at Divorce Financial Solutions have had the experience and education to know how to start and proceed with establishing a couple’s financial situation, and preparing your finances for divorce and for what comes next. If you need help, we can be here for you. Contact us and schedule a free initial consultation today.
Mercer, Diana, and Marsha Kline Pruett. “Planning for Success.” Your Divorce Advisor. Fireside, 2001, 37-57.
Written by: Veralynn Morris