How to Financially Prepare for Divorce

Divorce is undeniably one of life’s most challenging transitions, both emotionally and financially. It’s a time when the ground beneath you feels uncertain, filled with a mix of emotions, from grief and anxiety to hope for a better future.

Preparing yourself financially for the divorce process can provide stability and clarity. By building a support network, organizing essential documents, and understanding your financial situation through proactive divorce financial planning, you empower yourself to navigate this tumultuous journey with resilience and foresight.

Above all, it’s important to remember that this, too, shall pass. With the proper support, it’s possible to navigate your divorce and come out stronger on the other side.

This article shows you how to financially prepare for divorce by guiding you through some essential steps. We offer some practical tips to help you assemble a strong support team, stay organized, and know what to expect. We also talk about some common pitfalls to avoid and emphasize the importance of setting realistic goals for your post-divorce financial stability.

Step 1: Building Your Support Team

A strong support team can make a significant difference in your wellbeing during and after the divorce.

• A circle of trusted friends, family, and a mental health professional provide vital emotional support and help you cope with stress. 
• An experienced financial planner will offer guidance on asset division, debt, taxes, budgeting, and planning during and after the divorce. 
• A competent attorney protects your interests by offering legal advice, document preparation and filing, mediation, and guidance throughout the divorce process.

Financial planners and divorce attorneys work together to align your financial and legal interests to help create a fair outcome and prepare you for life after divorce. Your financial planner will maintain communication with your lawyer and spouse to define protocols for transferring assets, changes to authorizations, and provide data and reports to your spouse’s attorney.

Step 2: Organize Financial Documents

A clear financial picture improves negotiation outcomes in court. Gathering these documents is time-consuming and can be stressful, so start early. Getting your documents in order before filing for divorce may decrease potential contention further into the process. 

Keep everything in one place for easy access. If possible, use secure online tools such as Google Drive, Microsoft OneDrive, Internxt, or Dropbox. Be sure to take measures to prevent your spouse from gaining access to these accounts, which can be as easy as setting up a new dedicated email address.

Begin with:

• Checking and savings statements (past year).
• Current retirement account statements (if contributions are steady).
• Investment account statements (past year).
• Loan records—mortgage, auto, personal (past year).
• Credit card statements (past year).
• Recent pay stubs.
• Tax returns, federal and state (past five years).
• List out assets and debts brought into and acquired during the marriage.

Also, make copies of these important legal documents:

• Marriage papers, including any agreements or the marriage license.
• Real estate documents: deeds, appraisals, mortgage details, rental property records.
• Business records: receipts, tax filings, payroll information, and any patents or trademarks.
• End-of-life plans: will, power of attorney, and healthcare directive.

If you’re struggling to find documents, or your spouse isn’t cooperating, your lawyer can assist you. Update your insurance policies to reflect your new circumstances and ensure your will and powers of attorney are up-to-date.

Step 3: Understanding Your Assets & Debts

Knowing and categorizing your assets and debts is essential in the divorce process. This encourages fair and accurate division of property and liabilities between you and your spouse.

1. Create a detailed list of all assets, including real estate, vehicles, bank accounts, retirement funds, and stocks.
2. List all debts such as credit card balances, student loans, auto loans, mortgages, and other liabilities brought into and acquired during the marriage.
3. Categorize assets and debts as individual or community property.
   • Individual property is brought into the marriage, as well as gifts and inheritances received during the marriage.
     Community property is accumulated during the marriage.
4. Assess the fair market value of each asset and debt through appraisals or professional evaluations.
   • Accurate valuation is crucial for fair distribution of community property.
   • The court will allocate assets and debts equitably, considering each spouse’s earning potential and financial situation.

Step 4: Get Frugal & Create A Budget 

Individual Budgets: Begin planning for separate budgets as soon as the divorce proceedings start. Adopting a spirit of teamwork and transparency where possible can save a lot in divorce costs while improving your overall well-being throughout.

Essential Expenses: List your essential expenses, including housing, utilities, transportation, food, and childcare. Recognize that sacrifices are likely. Embrace frugality and avoid unnecessary spending. 

To build a financial cushion, save, don’t spend. This reserve can be helpful in covering attorney’s fees and unexpected costs later on.

Lifestyle Changes: Understand that potential income changes can affect your lifestyle. Prioritize what’s most important, aim for fairness, and choose your battles wisely. 

Step 5: Avoid These Common Financial Divorce Mistakes

• Don’t make large purchases until the divorce is finalized.
• Avoid making drastic changes to accounts, beneficiaries, wills, and retirement accounts
• Don’t split accounts without your lawyer’s approval.  Attorney-approved separation of accounts can help provide financial independence, protect your credit score, and reduce potential conflicts about spending. 

Step 6: Looking Ahead: Building a Secure Financial Future

• A Fresh Start: View divorce as an opportunity to reset your financial life. Take this chance to realign your priorities and create a new, stable financial foundation.
• Set New Goals: Define achievable goals tailored to your new circumstances. Whether it’s saving for emergencies, planning for retirement, or other priorities, clarity in your goals helps guide your financial decisions.
• Understand Your Financial Reality: Engage a financial planner to navigate your post-divorce finances. They can help you assess your financial situation, develop a budget, and make informed decisions aligned with your long-term objectives.

Final Thoughts

Taking practical steps to ease some of the stress of divorce is important, but the tasks listed here can feel overwhelming and bring up their own set of emotions.  Prioritizing your well-being through self-care is essential for maintaining resilience and clarity throughout the divorce process. 

It may not seem possible now, but you can emerge from divorce feeling empowered, free from expectations and doubts, and ready to chart your own path. Embrace this freedom as a testament to your strength and resilience. Consider divorce as an opportunity to rediscover yourself, pursue new dreams, and live authentically, unburdened by past constraints.

By following the advice of your attorney and financial planner, you can make a difficult transition feel a little bit easier. These experts will help you make informed decisions that safeguard your financial well-being long after the divorce is finalized.

For the last quarter-century, the professionals at SK Wealth have approached all our clients with empathy and understanding. We’ve perfected The Integrated Financial Advantage™, a unique financial planning approach crafted to provide our clients with personalized guidance so they can live with intention both tomorrow and today.

Click here to find out more about SK Wealth’s specialized financial planning and investment management services.