How to Prepare for Divorce Financially
There is a lot of disagreement about what percentage of marriages that will end in divorce. Fifty percent is a commonly cited number, but some studies suggest the percentage is under 40. What’s not in dispute is that the toll on those involved in divorce is far more than emotional.
The cost of a divorce averages about $15,000 per person nationally, which includes the cost of attorneys, court costs and hiring experts to help with real estate, taxes and child support. Naturally, what it will cost a particular couple varies greatly based on whether the divorce is contested and the amount of assets there are within the marriage.
So, if you’re going through a divorce, it’s important to know how to prepare so the financial stress can be minimized for everyone involved and that both parties can be protected.
Preparing for Divorce Checklist
Anger. Betrayal. Depression. The feelings created by the breakup of a marriage are many and powerful. What you can’t let them do is overpower your ability to focus on the steps you need to take. Need a shoulder to cry on? Find one. But keep a clear head.
Your divorce financial checklist has three major categories:
- Know where you stand financially
- Get all necessary documents and records together
- Choose experts who know what you’re about to go through and can help you get there safely.
Understand Your Financial Situation
Simply put, you need to know what you have and what you owe, both individually and what you share with your partner. Those assets will have to be divided, and it’s harder to get your share if you don’t know what they are.
The best financial advice for divorce starts by finding out what you owe. Go online and order a credit report from annualcreditreport.com. The report will tell you of debts you know and may reveal debts your spouse has created in your name that you don’t know about. If you find anything amiss, share that with your attorney, not your future ex-spouse.
While you’re at it, it will help if you use one of many online sites to get your own credit score. You are about to be on your own financially, and it’s valuable to know where you stand and what steps you need to do to improve that standing.
Close any joint accounts that you can; it will take cooperation from your spouse. You might want to open a new credit card account for yourself, then close your existing cards or, if that’s not possible, contact the creditor and request no further charges be accepted. This prevents a vindictive spouse who knows your three-digit security number from going online and causing problems.
If you are behind on payments and receiving past-due notices, contact your creditors. Financial issues are common in divorce petitions, so creditors can be more cooperative with such delinquent accounts. Look into methods of debt consolidation that turn high-interest debts such as credit cards into something with a lower rate that makes payment affordable.
There also are nonprofit agencies that offer credit counseling instead of loans. They work with card companies to reduce the interest rate and make the monthly payment affordable.
Having done all these things, you’ll need to create a budget so that you can stay within your means and, if you stick to it, move forward financially. Set intermediate and long-term financial goals, calculate your expenses and income and make the necessary spending adjustments.
One more thing: Update your will. You don’t want your estate going to your spouse now, do you?
Financial Documents Needed for Divorce
Who owns what? Who owes what? You’re going to need records for that, and since attorneys charge by the hour, it pays to have them well-organized before you get to a lawyer’s office.
- Income tax returns
- Paycheck stubs, W-2 forms
- Financial records (bank statements and loan information)
- Investment account statements
- Employment records
- Pension information
- Retirement savings accounts
- Social Security statements
- Children’s bank accounts
- Debt records (credit card and loan statements)
- Wills and trust agreements
Consult with Divorce Experts
No matter how smart and competent you are, there are things you shouldn’t take on by yourself. Divorce is one of them. It has legal, financial and emotional components, the last of which not only deserves its own support system, but can cloud your judgment concerning the first two. You’re going to want help with a divorce.
Here are some places to find help with a divorce:
- Attorney. Divorce is a legal matter, and it would be foolish to go through this without someone looking out for your legal interests. But all divorce attorneys are not the same. If you’re looking to continue a civil relationship with your ex, or if the financial stakes are not high, it’s counterproductive to hire one whose calling card is taking spouses to the cleaners. Interview three attorneys and pick one that’s right for you and your situation – including your budget. Don’t hire more expensive legal help that you can afford.
- Financial adviser. If you already have one, good. If not, find one who can help you know the potential financial pitfalls and help you plan to avoid or recover from them.
- Emotional/spiritual counsel. No matter how much you feel you have it together, divorce rocks your world. Whether it’s a psychiatrist, a therapist, a minister or a combination, consult someone who can help you deal with what’s going on inside you. It’s probably a lot. And, if there are children involved, their world is being turned upside down. Get someone to help them.
- Divorce coach. There are professionals who specialize in helping with a lot of the financial, emotional and organizational issues and help the client set goals and move forward.
- Family and friends. You’re going to need people to talk to when it’s not business hours, and don’t charge for their time.
- What you don’t need: A new significant other. Depending on the family law in the state where you live, starting a new relationship before your divorce is final can cause all kinds of problems during the process.
Divorce Assistance for Low Income
Unfortunately, not everyone can afford a lawyer. Fortunately, there are legal aid offices that offer free assistance, including for child custody and divorce cases.
Congress established the Legal Services Corporation as an independent nonprofit in 1974 to provide financial support for civil legal aid to low-income Americans. To find one, go online to www.lawhelp.org. If you receive financial aid through other public aid programs, you may be eligible for continuing free legal services in your state.
Also, victims of domestic violence or those who fear for their safety may qualify for free legal aid from organizations that can help you gather evidence of abuse and file for restraining orders, among other things. Call the National Domestic Violence Hotline at 1-800-799-SAFE (7233).
And not all abuse is physical. The National Coalition Against Domestic Violence says more than 94% of domestic violence victims suffer financial abuse and feel they can’t escape for fear of being homeless. Abusers know this and tightly control finances, limiting access to things like checking or savings accounts; imposing time or transportation demands that prevent the victim from getting a job; forcing the victim to sign financial documents or opening charge accounts without the victim’s knowledge. The National Endowment for Financial Education (www.nefe.org) helps victims gain the information and skills needed to gain control of their personal finances.
If you do not qualify for legal aid check with your area bar association’s lawyer referral service to find a lawyer who can take your case for a reduced fee. To find the bar association in your area, visit www.americanbar.org. If there is a law school where you live, ask if it provides legal clinics in which law students provide free help while supervised by law professors.
Types of Divorce
With rare exceptions, every state has no-fault divorce, eliminating the need to prove wrongdoing on the part of the other spouse. That has eliminated a big point of stress in the process. On the opposite end of the tension spectrum, there are uncontested divorces in which the two sides work together to hammer out the terms, cooperatively filing paperwork and ending the marriage without a lot of fuss and muss. Obviously, a big factor is the parties’ willingness to get this done so everyone can move on with their lives. There are three basic ways to get there.
A contested divorce is how most people likely envision divorce, if only because that’s the way it’s portrayed in entertainment – two sides fighting to get the better deal.
Pro: If there is a lot of money at stake or there are sharp disagreements on how the children should be raised, and by whom, this may be necessary.
Con: It’s expensive, contentious and public.
Arbitration is a method in which a private judge, or arbitrator, assesses the facts on both sides and makes a final ruling.
Pro: It’s faster, less expensive, can be more easily scheduled around the needs of the couple involved. It also happens in private instead of a public courtroom.
Con: While a judge’s decision in a divorce trial can be appealed, an arbitrator’s decision is final.
Meditation involves a neutral third party who hears both sides, but the mediator does not make a decision. Rather, the mediator helps the two sides communicate so they can reach an agreement that a judge can use to create the final divorce judgment.
Pro: The two parties are more likely to be happy with a decision they agreed on.
Con: If the two sides aren’t willing to find common ground, mediation is going to be a waste of time. Contested divorces and arbitration reach a definitive conclusion.
All of this, of course, assumes that the relationship is irretrievable. That’s something you have to be confident about before heading down this path. But if you are, do it carefully, hopefully, both parties can move on to a better future.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].