How do you finance a divorce?
It depends on how civil things are. We all know that divorce is an expensive process. However, there often isn’t enough attention given to how divorce affects finances. The cost of divorce will depend on a variety of factors: Namely, if mediation is needed, if the divorce is contested, and how complex or contentious the process becomes. Remember, you will not only need to pay your lawyer, but also any court and documentation fees, as well as any potential payments to your former spouse that are worked out in this process. Going through the process of divorce can cause money problems for some, especially if it is drawn out over an extended period of time. No matter which situation you find yourself in, you do need to prepare for how divorce will affect your personal finances.
How to Prepare Finances Before Divorce
Once you’ve decided that divorce is the best option for you, you will immediately need to begin preparing. Preferably, you’ll be able to work amicably with your soon-to-be former spouse regarding divorce finances. Sitting down and being able to work your joint finances out amicably will make the process a smoother one. Still, make sure you are as involved as possible in preparing any financial records to bring to the court. Your involvement means that you are fully aware of the situation and are looking out for your best interests moving forward.
Unfortunately, when ending a marriage, it isn’t always possible to be pleasant and work things out together. If this is the situation you find yourself in, it is best to come to your meetings prepared with any financial records that can help you.
Here are some of the more crucial financial items to pay attention to when preparing your finances before divorce:
- Protect your credit score. Knowing what your credit score is and taking the steps to ensure it remains in a good range is imperative to your financial success moving forward post-divorce. Being aware of your credit health as early on as possible will help set you up for success should you need financial help during and after your divorce. For example, you need to know what type of mortgage loans your credit score qualifies you for if you need to purchase a new home due to your divorce.
- Track your expenses. This is probably the most important part of preparing your finances for the divorce process. If you’re hoping to get spousal or child support, then this will be key. It is extremely important for you to chart your expenses and break things down in as detailed a manner as possible. We all think of things like housing, healthcare, groceries, debt, and child care when creating a budget tracking sheet. However it is important to include line items for all categories of the lifestyle you’re accustomed to. This includes recreation, pet care, professional services, special events, and social monetary contributions. You’re only going to be able to argue for the support you need to continue living the lifestyle you’re accustomed to if you come prepared to fight for it.
- Spending before the divorce. If you plan to make any major purchases before filing for divorce or in the midst of your divorce, be sure to first get the advice of your lawyer or just consider waiting until after your divorce is finalized. Spending on any items not necessary for marital purposes can be considered dissipation of marital assets. Because your financial records will be scrutinized during the divorce process, it is best to wait until the divorce is finalized to spend money on personal items or experiences, especially if it’s out of your normal habits.
- Keep all financial documents organized. Doing so will make your life easier during this process. Have the verified, physical copies of tax returns, credit statements, and pay slips readily available to provide as financial proof if and when they are needed. Showing you are forthcoming and prepared with these documents and this information will only help you.
How to Protect Your Finances in a Divorce
Divorce can cause a huge hit to your finances. While financial security and comfort are important, finances shouldn’t cause fear of divorce. There are steps you can take to protect your money in a divorce and help you feel more secure in the aftermath. Hiring an experienced attorney is the first important step, because with their experience and expertise you can be sure you’ll be getting the best help possible.
How to Keep Finances in Check During Divorce
Continuously updating your financial information is key to keeping your finances in check while in the middle of a divorce. Remember, your finances will be intently scrutinized throughout the divorce so it’s important to keep your spending normal and records organized. Anything out of the ordinary or used for non-marital purposes could be called dissipation and be further questioned and examined.
Is property considered a financial asset in a divorce?
Your home, like any other property, is an asset. The division of marital property and assets can get tricky, especially when there are more factors involved. For example, if either of you own a business, then the property owned by or through that business is considered an asset that you or your spouse is entitled to. Even if you have pre-marital assets, they are included within the division of assets in your divorce as they are considered marital under the law.
Dividing Debts in a Divorce
Just like assets are divided during a divorce, so are debts. The court will decide who is responsible for repaying what, with the goal being equity as all debts incurred during the marriage are considered shared debts. Factors, like who was given what in the division of assets, will also be taken into consideration when dividing debts.
How to Rebuild Finances After Divorce
When managing finances after divorce, the best thing you can do is get a handle on your expenses early on. Find ways to adjust to living within your means. While having a realistic budget in place certainly helps in managing your finances post-divorce, your attitude and mindset also play a role. Letting go and focusing on the future can help your rebuild be more successful.
One large financial difference you’ll need to learn is how to file your taxes appropriately. When filing taxes after divorce, the date of your divorce plays an important role. If your divorce is final before midnight on December 31, then you will have to file individually from your former spouse. However, child support is both non-taxable income and non-tax deductible.
Other Divorce & Finance FAQs
What percentage of marriages end in divorce due to finances?
It is commonly known that 50 percent of marriages in the U.S. end in divorce. With that in mind, 35 percent of people named finances as the main issue with their partner. This highlights the importance of having the sometimes difficult conversation about finances before marriage.
Talk to a Finance Divorce Lawyer
If you have any questions or concerns about your personal finances during a divorce, schedule a free consultation with an experienced attorney.