Nothing is easy when it comes to divorce, especially when it involves money. Whether you have a high income or are a stay-at-home spouse, you will face financial challenges during the divorce.
Taking Stock of Your Finances
Your first steps in financially preparing for divorce should include consulting with a lawyer, identifying costs, and knowing what you have.
Talking to a Lawyer and Identifying Costs
A divorce attorney can guide you on the specific laws of your state, represent you during the divorce process, ensure you receive everything you deserve from your ex-spouse, and make sure you don’t concede too much in the process either.
Obtaining a Copy of Your Credit Report
Maintaining a good credit score is important at any time, but it becomes even more crucial when starting anew and potentially needing to rent an apartment, buy a home, or acquire new debt. To ensure there are no surprises, such as an account your ex-spouse opened in your name, be sure to check your credit report.
Gathering Your Personal and Financial Documents
You will need a clear picture of your finances to use as evidence during the divorce proceedings and to establish a plan for the post-divorce period. It’s wise to keep this information in two secure locations. Here are some of the most important financial and personal documents to gather:
- Marriage certificate
- Tax returns for the last three years
- Recent statements for bills, property taxes, and utilities
- Recent bank and investment account statements
- Your current budget (or a list of monthly and annual expenses)
- Recent statements for any income, such as pay stubs and government benefits or side job income
- Registration and address information for any assets, such as your home, car, or recreational vehicles
Financial Steps Before and After Divorce
Once you have a complete picture of your current financial situation, you can start thinking about where you might be able to get to and the steps you will need to take to get there.
Opening New Bank Accounts
It’s best to start by opening new bank accounts in your name only, if you don’t already have them. These accounts will provide a place for the money that will be divided later, but they serve another purpose even before you officially begin the divorce process.
Creating a New Budget
A strong budget is a good thing at any time, but it’s even more crucial when starting over. With this budget, you can estimate two things: how much you need to rebuild yourself (like rent deposits and a down payment on a car) and how your financial situation will look long-term.
Establishing an Emergency Fund
An emergency fund is even more important when you are freed, particularly since you are no longer relying on your ex-spouse. If you lose your job, suffer an injury, or have car trouble, an emergency fund can help cover unexpected costs.
Taking Action on Joint Debt
You might consider paying off any debt you have before filing for divorce, if possible. If that’s not feasible, you can take other options such as refinancing the debt in one person’s name only, or keeping it as a joint account.
Assessing Your Insurance Needs
Insurance is designed to protect you from financial ruin, and now that your financial situation has changed, those threats will be different. Before the divorce is finalized, review your coverage for all types of insurance you have, including car, home, life, disability, health, and others. For example, you may need to look for alternative health insurance coverage if you originally relied on your ex-spouse’s plan.
Updating Your Estate Plan
Estate plans range from formal plans and wills to something as simple as who you have named as a beneficiary on your financial accounts. Updating your estate plan is one of those things that can be overlooked during the divorce process, but it’s important to remember. “You don’t want your ex-spouse to inherit money that you would prefer go to someone else,” according to Van Tine. Remember to update your estate plan so that you are the one making decisions about your inheritance, not your ex-spouse. This includes changing your power of attorney and health care proxy, and who will receive your life insurance if you pass away.
Questions
The Repeated
How can you protect yourself financially before a divorce? A good attorney can ensure your financial protection throughout the entire divorce process. But at the very least, keep some money in a separate bank account that you can only access.
What should you ask for financially in a divorce? It completely depends on your situation. It’s best to consult a divorce attorney to find out how much money or property you should ask for in a divorce. An attorney can help you determine what is in your best interest and what is allowed under varying federal and state laws.
Should you pay off debts before a divorce? Generally, yes – it’s better to pay off as much debt as possible before a divorce because it will be easier than managing debt with your ex-spouse later. It’s best to talk to a divorce attorney before making big financial decisions. And remember to keep some savings as an emergency buffer and to rebuild yourself after the divorce.
Source: https://www.thebalancemoney.com/how-to-financially-prepare-for-divorce-7092480
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