In my practice, I have met many individuals in various stages of divorce, trying to organize or, worse, save their finances as they move through this emotional, sometimes volatile time. My goal is to do what’s best for my client with both a short- and long-term view, and, keep my client safe – financially.
There are three distinct phases of divorce, and there are different financial needs through each of them. Phase One is before the divorce. Whether you are the one asking for the divorce or have just been notified that your marriage is coming to an end, there are steps to take to be sure that your finances are secured and safe from tampering – as best you can. Phase Two is during the negotiation stages of divorce, when there needs to be a keen eye focused on dividing assets in your best interest, and, Phase Three comes after the divorce is finalized and you are ready to start a new life, most likely with a new budget and financial goals for success. Lifestyles and spending habits may have to change as well as savings goals – it’s important to put a plan in place for this new start.
We’ll investigate each of these stages through this three part series on Managing Your Finances Through Divorce. This is the first installment – Protecting Your Finances Prior to the Divorce. Parts 2 and 3 will follow next week and the following week.
You may be thinking that it’s time to talk to your partner about ending the marriage, or, your partner may have surprised you with the news. Either way, your first goal is to protect yourself and your finances so that you are in the best position as you move forward. Here are some steps to take to solidify your financial standing – not only for now, but, for your (and your children’s) future.
1. Start collecting important documents
Begin putting together a file of all of your family’s, spouse’s and personal financial documents, including tax returns, statements for brokerage/investment accounts, retirement plan and retirement accounts, even checking and savings accounts. If possible, collect statements and transactions for the past few years. You’ll do this for two reasons – 1) you’ll want to know where all of the accounts stand on the day of separation, as that is usually the starting point for dividing assets, and, 2) you’ll want to review past transactions to be sure that they are all “family” related (meaning: your partner is not depleting the family accounts in preparation for the divorce OR spending money on someone outside of the family).
2. Get copies of any outstanding loans
This includes your mortgage and home equity loan or line of credit as well as additional student debt or other lending sources. Again, you want to know that this debt only pertains to you and your family, and, you want to start determining the best way to reduce it, if possible.
3. Collect all credit card information
First run a credit report. This report will show all of your credit cards and loans – even if an account is closed, or worse, open in your name and you don’t know about it. Review it thoroughly to be sure that you recognize every outstanding item and that you agree with the payment accuracy. You’ll also want to know your credit score – a rating of your history paying off debt. If you don’t get a free credit score through your credit card or elsewhere, you can get one, along with your credit report, through creditkarma.com (report is free and score are free, but, may get ads/solicitations) or myfico.com (one report and credit score for $20).
Freeze your credit. Call or log on to each of the credit bureaus (Experian, TransUnion and Equifax) and ask them to freeze your credit. This means that no additional credit can be opened in your name without your explicit permission.
If the divorce is amicable pay-off and close joint accounts. If you can both agree to this it is safer for both of you to pay-off and close all joint credit cards. Then, open one in your name and continue to build a strong credit score.
4. Obtain copies of all life insurance
If your ex will be a source of income for you or your family in the future, protect yourself by owning life insurance. If it already exists, all the better, but, best to know what you have as you move into this phase of the divorce.
5. Open a checking account in your name only
No matter how the next few months and years go, there will be bills to pay that you will be responsible for. Be perfectly sure that you are able to meet these needs (and not drive up your credit card debt or hurt your credit score) by having an account in your name that you can begin funding so that you can meet your obligations as they come in.
6. Document your valuables
Before you start talking about splitting your possessions, take a moment to physically document your possessions. Everything can be negotiated in a divorce, but, it needs to be found, first – smaller items or items that you don’t see that often (jewelry, collectibles) could go missing for some time before anyone noticed. Be as precise as possible, taking pictures and dating documents.
Divorce can be a difficult time, take the time to own the process as much as possible so that you put yourself in the best position for your future.
Beth D’Andrea, CFP is the Founder of PlumTree Financial Planning, an independent, fee-only, financial planning company, where we believe your finances are personal. What defines you and your goals should drive your financial decisions – we at PlumTree call this “human-advisory.” Find more financial articles to help you reach your goals in our Knowledge Center at plumtreefinancialplanning.com.