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How to Assess Your Financial Health During the Divorce Process

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After a divorce, you can expect your wealth to drop. One study found separation after age 50 can result in a 50-percent decrease. Women are also disproportionately financially impacted by such a split, with their income falling 41 percent and credit scores dropping. Before you’re even officially divorced, you can expect to pay anywhere from $8,500 to $100,000 during the dissolution for legal, real estate, and mental health-related expenses, according to a useful breakdown in trade publication Divorce Magazine. These statistics underscore the importance of understanding and assessing your financial health before, during, and after the divorce process. 

Pre-Divorce

Whether you’re just thinking about getting a divorce or starting proceedings, it’s crucial you prepare your financials—especially if you’ve been in the dark. Sometimes, one spouse controls the finances, while the other remains uninformed. In these instances, it’s exceptionally important that you investigate your financial situation. Make copies of tax returns and account statements. 

Organize Your Financial Portfolio

To prep yourself, gather your financial documentation. The Institute for Divorce Financial Analysts offers a comprehensive checklist outlining all the paperwork you need. This includes financial statements, at least three years of income tax returns, paystubs, employee benefit and retirement information, a list of assets and debts, credit card statements, insurance information, and other documentation. If you share accounts with your spouse, requests for this information may not be confidential. For assistance, you should hire a professional. 

Meet With a Professional

A Certified Divorce Financial Analyst can help you navigate your finances. This specialist undergoes rigorous training to assist those undergoing a divorce, with short- and long-term financial planning. They analyze pension and retirement plans, as well as insurance and real estate needs. They’ll also investigate any associated tax issues. 

Open a Bank Account & Apply for a Credit Card

If you don’t have one already, it’s time to open a separate bank account and apply for your own credit card. Begin contributing money to your new account. Because it’s not a joint account, your spouse won’t be able to drain it. However, in a community property state, this new account will be considered a marital asset unless a formal separation date is established. When opening your own credit card, don’t authorize your spouse as a user. You’ll be able to start building your own credit.

Make Conservative Decisions

As you begin this process, refrain from making any big financial decisions such as changes to life insurance beneficiaries, wills, retirement accounts, and the like. Don’t do so without  approval from the court. Always consult your attorney prior to making any such moves. Of course, when going through a divorce, life doesn’t stop. You still have to make purchases. However, remember to remain conservative, and don’t dip into the joint accounts too much. Only take what is necessary. 

 

During the Divorce

After you’ve prepared all the documentation and organized your own finances separate from your spouse, you’re ready for the accompanying financial decisions of a divorce. These include splitting marital assets such as the home and debts. It also includes making choices about child and spousal support. 

Legal Costs

You and your spouse will need to pay for your legal teams and any other professional fees necessary. The average cost of legal fees range from about $15,000 to $30,000, while some lawyers charge as low as $250, according to a business article titled “The Divorce Gap” in The Atlantic, citing several sources. You need to either set these expenses aside, or come together with your spouse to decide on how the two of you will pay. 

Split Assets & Debts

During this stage, you and your spouse will begin splitting assets and debts—if the separation was amicable. If the split is contentious, it’s more likely lawyers or a judge will determine how your assets are divided. Another factor in this is state law. In a community property state, the spouse will be awarded 50 percent of everything acquired during a marriage, including wages, salaries, and real estate. In a separate property state, assets acquired prior to the marriage remain separate. Financial assets to be split include cash, savings and checking accounts, stocks, bonds, mutual funds, real estate, and more.

Tax Issues

There are typically tax considerations for each type of asset. Not all have the same consequences.

“Retirement assets are generally before tax asset[s]; this means that in order to access the money, you have to pay income tax on any distributions you receive,” reads a Forbes article written by personal finance contributor and certified financial planner James Brewer. “In some cases, you may also have to pay a penalty on the distribution in addition to the income tax.”

Decide on Child & Spousal Support

One of the most important decisions is typically child custody. Who will get the children, on which days, and for how long? Your custodial agreement, along with several additional factors, will determine which parent must pay child support. In 2012, the U.S. Census Bureau stated that child support payments averaged $430 per month. However, this varies greatly by state. Custody agreement scheduling tool Custody XChange found that a parent in Virginia could pay $400, while one in Massachusetts pays $1,200. Each state has their own child support calculator. Check out California’s here

Spousal support, aka alimony, is often confused with child support. This payment is typically made from the spouse with the higher income to the one with lower or no income. The cost depends on a variety of factors including the length of the marriage, ability for the receiving spouse to become self-supported, income and property of both spouses, and more. Alimony can be either durational, which means they have a fixed end date, or non-durational, which implies they don’t end until the spouse dies or they remarry. Similar to child support, several states offer spousal maintenance calculators. Take a look at the one from New York here.

 

Post-Divorce

Although the major expenses are behind you, it’s crucial to set yourself up for the future. Ensure your finances are in good standing so you’ll be able to successfully move on after your divorce. You’ll want to feel secure enough to purchase your own property, open an individual account, and manage your investments alone.

Make Document/Account Changes

If you’re changing your name after a divorce, there are several documents and accounts you’ll need to adjust. This can include your employer, social security, DMV, bank and investment accounts, insurance, and credit cards. You’ll also want to make modifications to your will and estate plan, account beneficiaries, property titles, and more. 

Develop a Plan

To maintain financial stability after divorce, you’ll need to make a financial plan. An aforementioned certified divorce financial analyst can develop a budget and long-term monetary outline. Initially, you may need to cut back on spending, downsize your property, take out a loan, or try to find additional ways to earn extra income. However, the plan you develop with the help of a professional should set you up for future success.

Invest

Always include investments in your plan. If you receive a portion of funds you and your ex had jointly invested, re-invest that money. However, don’t follow the same plan you used with your spouse. You’ll need a completely new investment outline to match up with your new needs.


To find a professional in your area that can help you assess your financial health before, during, and after divorce, check out DivorceForcePRO. We’ve curated a comprehensive network of financial, real estate, legal, and mental health specialists ready to assist you in your divorce.

Written by Gregory C. Frank, Founder & CEO, DivorceForce

Gregory C. Frank is the CEO and Founder of DivorceForce.

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