Divorce is an extremely difficult process to walk through, regardless of how long you’ve been married. The severing of a relationship can create sadness, anxiety, and fear for everyone involved, including family and close friends.
The divorce process is also complex and time-consuming, requiring the division of debts and assets, establishing new living arrangements, and determining custody agreements for children.
In addition to the emotional strain and day-to-day implications of starting over, divorce can lead to financial uncertainty. The financial impact of divorce can last for years, affecting investments, retirement savings, and even credit scores. Alimony, child support payments, loss of income, and legal fees also need to be considered.
Your Guide for Preparing Financially for Divorce
A divorce takes a substantial amount of time to finalize, with the average process taking about 12 months to complete. The length of your divorce will vary depending on your state’s laws and the personal factors involved.
In addition to time, divorces can cost a significant amount of money, with the average divorce costing between $15,000 and $20,000. The price of your divorce will largely depend on how much legal assistance you need. Uncontested divorces will be much more affordable, while contested divorces will cost significantly more.
I’ll explain how you can be prepared:
- Before the divorce proceedings start
- During the proceedings and
- After your divorce is finalized
Before the Divorce Proceedings Start
Once you and your spouse have decided to get a divorce, the last thing you probably want to do is think about your finances. Let alone the paperwork, accounts, and numbers that come with it. But to ensure a smooth transition, it’s important to get started on your preparations as soon as emotionally possible.
- Organize your finances: Getting organized early will save you time (and money) later on once attorneys and the courts are involved. Start gathering financial statements such as:
- Income tax returns
- Bank and credit card statements
- Investment documents
- Mortgage paperwork
- Retirement account documentation
- Employee benefits
- Paystubs
- Insurance information
- Know your assets and liabilities: These critical financial pieces will need to be properly divided between you and your spouse. Marital assets are anything purchased during your marriage (houses, cars, etc.) and non-marital assets are anything you or your spouse acquired before your marriage.
Marital and nonmarital debt follow similar rules. Both your assets and liabilities need to be well-documented and listed for ease of division. Each state is slightly different and will have varying rules regarding assets and debts.
- Start saving: As I mentioned above, divorce proceedings can be expensive. As a couple, discuss the associated costs and jointly plan on saving and contributing toward the fees.
During the Proceedings
Once your divorce gets underway, there are many steps you can take to ensure your financial future is in good shape.
- Move forward solo: This is also a great time to start setting up bank accounts and credit cards in your name only. You can even get a PO Box in your own name so you can receive important documents privately. During your divorce proceedings, you don’t want to take on any debt or make substantial purchases.
- Shop for new health insurance: Divorce is considered a “qualifying event”, meaning you can change your medical insurance plan outside of open enrollment. Research your options and see which plan makes sense for you (and any children you may have) moving forward.
- Discuss the budget: Life still moves at a steady pace during divorces. Bills need to be paid and future expenses need to be saved for. Through amicable communication, discuss who will be responsible for paying the joint bills while you’re going through the proceedings. The last thing you want is to be hit with a missed payment fee or get behind on your financial goals.
- Consult your tax professional: Divorce can have huge tax implications and it’s best to consult your tax professional for any questions you may have. They can help guide you through the process and let you know what documents you need to keep organized. The time of year your divorce gets finalized will impact your tax situation.
After Your Divorce Is Finalized
Once the papers are signed and your divorce is finalized, it’s time for you and your finances to begin moving forward.
- Update life insurance policies: Policy owners and beneficiaries both need to update their policies post-divorce. If you are now a single parent, you should consider opening a policy for yourself if you don’t already have one to protect your child(ren).
- Update retirement plan beneficiaries
- Change your will: You will most likely want to revoke your old will and create a new one after your divorce is finalized.
- Create new long-term financial goals: It’s time to rethink your future and create a plan that aligns with your post-divorce goals and dreams. You and your ex-spouse may need to share retirement accounts and jointly save for your children’s higher education expenses.
- Talk to a trusted friend: All the financial preparedness and diligence in the world won’t make up for the fact that you’re going through a huge life event. Regardless of the circumstances surrounding your divorce, it’s important to ensure your emotional and mental health are also cared for during this season.
Prepare Your Finances for Divorce and Other Life Circumstances with Legacy Planning
Having a trusted financial advisor in your corner is like having a close friend who walks with you through life’s ups and downs (a friend who also just happens to be incredibly good at giving financial recommendations).
Getting married, raising children, caring for elderly parents, receiving an inheritance, starting a business, getting a divorce, and retiring all have huge impacts on your finances. While some of these life events can be predicted (hopefully retirement is one of those), not all of them can be. That’s why having an advisor in your life is the secret sauce to a healthy financial life and portfolio.
At Legacy Planning, we take a long view when it comes to our professional relationships with our clients. We’re here for you regardless of what life throws at you and go beyond what’s expected. To see if we can help you navigate your finances through different life circumstances, click here to schedule a conversation today.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.
