Financial Moves to Make Before (and After) a Divorce
When a marriage ends, everyone focuses on the emotional impact, but the financial fallout can cause long-term damage. Whether you’re getting ready to file for divorce or you’re already going through one, having a clear financial plan isn’t optional.
Here’s a look at what you need to do before and after your divorce to protect your financial future.
Hire a divorce attorney
Hiring a qualified divorce attorney is a smart financial move. A good lawyer will not only file all your paperwork properly, but they’ll help to protect your assets and reduce your risk of loss during the divorce. A divorce lawyer will:
- Help you avoid irreversible mistakes. Once a divorce is finalized, it’s not easy to change the terms. That’s why it’s crucial to ensure that things like asset division and alimony are fair from the start. Having an attorney will prevent you from agreeing to something that will hurt you later on.
- Help you understand your tax and legal implications. A skilled divorce lawyer will flag areas that have hidden tax implications, like transferring ownership of a home and dividing retirement accounts.
- Protect you from your own emotions. A lawyer will keep you grounded in logic and law, not guilt and resentment. This level-headed approach will make your entire divorce easier.
- Level the playing field. If your spouse has legal representation and you don’t, you’ll be at a disadvantage, even if you’re splitting up amicably. The minute money and custody issues arise, things can turn adversarial fast.
Your first and most important move is hiring a divorce attorney. Trying to do it yourself just isn’t worth the risk.
Inventory your financial situation
Before you sign any forms, talk to your spouse, or make decisions, clarify what you’re working with financially. You can’t negotiate or plan from a place of uncertainty.
Start by inventorying your assets and liabilities. List everything from your bank accounts and retirement accounts to real estate investments, debts, and life insurance policies.
Next, separate personal property from marital property. Knowing what property counts as which type may require legal assistance. Generally speaking, gifts, inheritances, and things acquired before your marriage are considered personal property.
Document all of your shared and personal expenses. Anything going through your joint checking account will be your responsibility until everything is legally divided – even if your spouse drains the account.
Assess your monthly cash flow. You have two incomes now, but after your divorce you’ll just have one. Your expenses may rise more than you think, so be prepared to downsize your lifestyle.
Evaluate settlement options while thinking about your future
When you split up assets, don’t just participate to get it done. Take the time to evaluate the deal like it’s going to affect you for the next 20 years, because it likely will. Understand the long-term value of all assets involved. Taking the house may seem fair now, but you’ll soon need to pay for repairs and property taxes, and it may even lose value. There’s also a possibility that a business valuation now doesn’t account for lost future income because of a drop in market demand.
It’s crucial to consider how your asset divisions will impact you financially in the future because your cost of living will likely increase after your divorce. That can make some divisions even more expensive than you think.
Match your lifestyle to your resources
It’s smart to shift your lifestyle to match your resources as soon as possible. Don’t wait until your divorce has been completed to get started if you need to downsize your life. Studies show that most people need around 30% more income to maintain their lifestyle post-divorce.
Rebuild your finances after the divorce is finalized
Once your divorce has been finalized, you can start rebuilding your financial life. Start by creating a new budget for single-household living. The transition period will inevitably bring on new expenses, and some of them may be permanent. Build an emergency fund and review your financial goals to see if you need to make any changes. Most importantly, update all of your legal and financial documents to reflect your single status.
To protect your finances, make sure all joint checking accounts and credit lines are closed or remove yourself from the accounts. Don’t risk it, even if you think you can trust your ex.
Divorce doesn’t have to strain your financial future
When your marriage ends, it’s important to protect your finances. By being proactive and sourcing legal help from a skilled divorce attorney, you can rebuild your life without sacrificing your financial well-being.
