If you’ve been thinking about asking for a divorce, you may want to take a few practical steps to secure your financial situation first. Going through a divorce is hard, regardless of your financial situation. And it almost always takes a negative toll on your current and future finances.
The emotional stress alone can cause you to make decisions or agree to things that may feel right in the moment but can impact your financial well-being for years, maybe even the rest of your life.
That’s why it’s so important to be prepared financially before you take any significant steps toward divorce. It’s the only way to protect your financial future and make sure you and your family have lasting financial security.
Divorce Can Be Financially Devastating… Unless You’re Prepared
It’s an unfortunate fact: women tend to suffer financially more than men after divorce. At least initially, our incomes drop… our expenses increase… our credit scores drop… and our retirement savings take big hits.
But if you’re prepared, you can avoid these negative financial consequences and even thrive financially in time.
That’s why it’s really important to make sure you’ve got some basic financial safety nets in place before you start talking about divorce. This is true no matter how great your soon-to-be ex is and no matter how well the two of you communicate now.
When divorce is on the table things can change. And they normally don’t change for the better.
Everything Is About To Change – A Lot
Your financial situation right now may be stable, even good or great. But that could change substantially once you and your soon-to-be-ex (STBX) start talking about divorce. While you go through your separation, the divorce proceedings, and the divorce itself, your income and expenses are going to change and you won’t have access to the same resources that you had before.
That’s why it’s so important to plan ahead. So you can be prepared to handle changes in your household budget and cash flow, and not have to deal with sudden changes at the same time you’re dealing with all kinds of emotional and situational upheaval. And most importantly, so you and your kids can weather these changes with as much financial support as possible.
For example, lawyer’s fees alone can gobble up anywhere from $ 15,000 to $100,000 depending on how complicated your divorce is, how long it goes on, and how hard it is for you and your soon-to-be-ex to come to an agreement.
And while you may be able to get a divorce without a family law attorney, when there are kids and a lot of money issues involved you’ll be better off working with a pro. Among other things, you may be dealing with a mortgage, retirement accounts, health insurance, debt, and a bunch of other hot-button issues. Then there’s child support payments, spousal support, who’ll keep the house, and more. Things can get very complicated and emotional, even ugly, fast.
And those legal fees are just one big financial issue that you’ll be dealing with. There are lots of others.
So before you bring up getting a divorce, here are 8 things you want to do to put yourself in the best possible financial position for your future.
1. Start Gathering Information As Soon As Possible
Gather your bank statements, credit card statements, loan statements, and everything you can think of that affects your financial life. If one or both of you has a business, you’ll want financial statements from the business(es). Get investment account, retirement account, and life insurance statements if you have them.
You’ll want to have every piece of financial data you can lay your hands on from the time you got married up until now. This includes anything you own jointly and things that you owned separately from before your marriage that may have grown in value. Make sure you have your tax returns too.
This information is going to be one of your most important assets, so you want to make sure that you have everything that you need to be able to figure out the best outcome.
2. Put Aside Some Accessible Cash for Living Expenses
Start putting together some cash – you’re going to need it. Make sure you save up enough to keep you afloat for a month or two. Put it somewhere that only you can access, like your own bank account. And make sure that it’s cash and not investments or anything you’re going to have to try to convert to cash before you have access to it.
Do not pull this money out of your joint bank accounts. Eventually, those will need to be settled according to your divorce agreement. If your bank records show that you pulled a bunch of money out before asking for a divorce, technically your spouse could use that against you and say that you were trying to hide assets.
3. Look Seriously at Your Job Prospects
Even if you have a great job now, you’re probably going to need more money post-divorce. So get ready to update your resume. That includes taking a hard look at your current skills and maybe taking courses to increase or improve those skills.
With more or stronger job skills, you’ll be in a better position to get a promotion or a raise. Learning new skills can help you get a different job somewhere else if you want to. You could even start a side gig or your own business. You want to do whatever it takes to bring in more money so you’ll be in a more financially secure position once you’re ready to go through with a divorce.
You also want to make sure that your resume is absolutely up to date with your latest job description and skills. It’s probably a good idea to have somebody help you create an amazing resume. It can be really hard for some people to talk about themselves in a salesy, or even positive way (I’m terrible at it). But that’s what your resume is for. If you haven’t revised it in a while, you’re definitely going to want someone to take a look at it for you.
4. Get A Credit Card In Your Own Name
Women’s credit scores often take a dive post-divorce, though they’re likely to bounce back quickly if you know what to do. The first step is to make sure you have at least one credit card in your own name.
If all of the credit cards are jointly held between you and your soon to be ex, you definitely want one in your name because you want access to something that’s your own line of credit that no one else can interfere with. Be aware that having a credit card where you’re the main card holder and your STBX is an authorized user may not count as being just in your name.
This will help you start building an independent credit score, regardless of what your STBX’s credit looks like.
5. Start Looking for Hidden Assets and Debts
As hard as this may be, you want to start looking for hidden assets before anyone has time to hide them. A lot of women don’t believe their spouse would ever hide assets from them but it’s super common – I’ve seen it too many times. That goes double for debt. Sometimes one spouse takes out a personal loan or separate credit card without letting the other one know. And even if you’re not named on it, you could be stuck owing that money depending on the circumstances.
If your spouse has a business, they may be hiding some assets in their business accounts. There could be also be business-related debts you don’t know about. Look for both, so you’re not caught off guard.
6. Create a Post-Divorce Budget
Your income and expenses are going to change after the divorce. That’s just a fact. You’ll want to create a post-divorce budget before you need it, so you have a better idea of what to expect. It’s really important that you make this a realistic budget, so take the time to come up with numbers that will best match your immediate future.
Your living situation, and the way it affects your finances are going to change, probably dramatically. This is true whether you’re planning to stay in the house or to move somewhere else. That can also change your utility bills, commuting expenses, and other things related to where you live.
Figure out how much it’s going to cost you to live for the first six months after the divorce and make sure you have enough money set aside or available as income or other resources to cover those expenses.
Download my Single Mom Monthly Budget Worksheet to help you get started.
7. Figure Out How Divorce Will Affect Your Health Insurance
A lot of people don’t understand how health insurance works after a divorce. If you’re on your spouse’s policy through their work, you can keep insurance after the divorce but you’ll have to pay for it. That happens through a program called the Consolidated Omnibus Budget Reconciliation Act or COBRA, and it lets you stay on the same policy for up to 36 months.
COBRA insurance isn’t cheap, but it’s often less expensive and better coverage than going through the marketplace. You can find out more about COBRA and how it will affect you here.
If you have kids on your STBX’s health insurance policy, you’ll want to figure out if they can stay on it. You don’t want to suddenly be without health coverage when it’s something you’re not expecting. Try to figure out what you’ll need and how you’re going to be covered before you start talking divorce.
8. Understand Your Tax Situation
Taxes can get complicated during and after divorce. So many questions will come up:
- Are your taxes up to date?
- Will you file one last joint return?
- If you have kids who will claim them as dependents?
- Will you switch off years for tax credits?
Then there’s filing status: If the kids live with you more than half of the year, you can file as “head of household” even if you don’t get to claim the kids as dependents. You may even be able to use this beneficial filing status while you’re still separated, but there are some strict rules that go with that. Make sure you understand what your tax situation is going to be or you could end up with a much bigger tax bill than you’re expecting.
And if it turns out that you have back taxes that aren’t filed yet, it’s really important to get those returns filed and out of the way before the divorce. Regardless of who is in charge of the finances, you’re responsible for everything that happened while you were married as far as the IRS is concerned.
The More You Prepare Your Financial Situation Ahead of a Divorce, the More Financially Stable You’ll Be In the Long Run
All of this may seem like a lot to deal with when it feels like your world is falling apart around you.
But as hard as it may be to wade through all of these financial issues, you and your kids (if you have them) will be a lot better off after the divorce if you take these steps now.
I strongly recommend talking with a trusted financial advisor about how a divorce could affect you. Together you can put together a plan that will help you prepare for the worst, hope for the best, and roll with whatever comes.
A financial advisor will also help you and your lawyer figure out what you need to get from your divorce settlement to be able to thrive after the dust has settled, so you can get on with your life.
I offer financial coaching for single moms and people going through a divorce. I use my Single Mom Monthly Budget Worksheet with my clients, so they can see what they’ve got coming in vs. what they spend each month. That way, they’re prepared for the changes they’re going through.
Please download your copy now, so you can use it to assess your financial situation.
Then you’ll be one step closer to being prepared to start talking about divorce with your spouse.