When is it time to divorce? And how to prepare financially

No matter who you are or how long you’ve been married, the potentiality of divorce isn’t an easy pill to swallow. Divorce can be incredibly stressful, emotionally taxing and difficult to navigate. And it can be even more difficult to make the decision to divorce if you don’t feel financially ready – a problem that disproportionately affects women. That’s why it’s important to take stock of both your emotions and finances when considering whether it’s time for you to divorce your spouse.

When deciding whether it’s time to divorce, there are plenty of resources and sources of guidance available to you – you just have to know where to look! Here are some of our most helpful tips to help guide you towards the right decision, with your finances in mind.

First things first: You’re not in this alone.

Divorce can feel like an insurmountable barrier standing in your path. You may be thinking: How do I know when the time is right? Where do I even begin? What do I need to plan for, financially and otherwise?

Remember: you’re not alone. Between friends, family and legal and financial professionals, you have a team of supporters with your best interests in mind.

If you’re feeling overwhelmed, or even a little lost, you’ve come to the right place. We’re laying out five key steps you need to take to emerge from divorce on solid financial footing.

How to know when it’s time for divorce

When is it time to divorce? There truly is no “one size fits all” for deciding when to file a divorce with your partner. You may find it’s a slow burn – a revelation that dawns on you over time. For others, it may be one catastrophic action that pushes you to the brink. At the end of the day, your mental and physical wellbeing matters the most, as well as the safety of you and your family.

If you have explored marriage counseling, and things do not seem to be improving, you may want to consider beginning the divorce process. Here are some of the signs that may make you ask: is it time to divorce?

1. Healthy communication has stalled.
2. Your marriage lacks intimacy, feelings of closeness, and fondness for your partner.
3. One partner is causing major financial stress or financial problems.
4. Major opinions differ and are irreconcilable, for example, the decision to have children.
5. There’s a lack of respect between you and your partner.
6. Someone has cheated. Infidelity is a big warning sign that your marriage isn’t on solid ground.
7. There’s domestic abuse, including but not limited to physical, emotional and financial manipulation.
8. You already have an exit strategy. If you’re already planning a life after divorce, it may be time to consider taking the next step.

We understand that the unknown is frightening and anxiety-inducing. No matter the reason for your decision, you’ll likely feel much safer and more secure by taking a proactive approach to preparing yourself mentally, legally and financially prior to filing. Though it may seem stressful right now, understand that this too shall pass, and soon enough you’ll have another chance at happiness.

Key Questions to Consider When Preparing for Divorce

Before you sign on the dotted line, keep in mind that you’ll need to think about a number of different factors, especially when it comes to your financial situation. Here are a few key questions to consider:

• How can you prepare for your divorce financially?
• Are you currently making ends meet?
• Can you afford to stay in your house or apartment?
• Do you have a divorce attorney?
• Do you have your own line of credit?
• Do you have your own bank accounts?
• How will your finances get split in a divorce?
• How can you protect your assets and your interests?

5 Key Steps to Prepare For Divorce Financially

Keeping control of your own finances will allow you to walk away from your divorce with the freedom you want. Being newly single may even help put your mind at ease too. One study found that 59% of women were most content with their financial situations when they were not married; 37% of women were most satisfied with their financial situation after divorce and 22% when they were originally single.

One of the biggest impacts of a divorce, besides emotional trauma, is the impact it can have on your finances. That’s why, when you’re preparing for a divorce, it’s important to get your finances in order before signing the dotted line.

Here are the five key ways to financially prepare for divorce::

1. Take inventory of your finances

Conducting a financial audit of your life to gain a complete picture will help you make major financial decisions. This is especially important if your spouse has handled the finances for your family in the past.

You will need to gather:

• Tax and income documents, like tax returns
• Real estate documents, like deeds and mortgage documents
• A complete list of personal property including items of value like jewelry, art, and cars
• A complete list of financial documents including bank statements, investment statements, retirement account statements, pension plans, life insurance policies, disability insurance policies, and more.
• Credit card and debit card information like student loans and credit card statements
• Estate planning documents like Wills or Trusts
• If applicable, gather your business records like business tax returns and financial statements

In addition, don’t forget about other valuable assets. That may include Country Club memberships, reward points, airline miles, and other similar programs.

If possible, you will want to gather this information yourself before asking for your divorce. You are entitled to the information, of course, but some partners may try to hide assets and information. If this does happen, you may need to rely on the courts or a forensic accountant to enforce this right to information and uncover hidden assets.

Above all else, try to keep an open line of communication with your spouse if it is safe to do so.

2. Establish individual accounts

Many couples make the decision to have joint accounts rather than individual accounts. If you don’t have your own bank account, now is the time to start. Start your own checking account, savings accounts, and credit card.

Unsure about the state of your credit? Request a free credit report. This will tell you a number of important factors, including whether your spouse has opened any accounts in your name. Freeze your credit, too, to prevent any financial mishaps in the future.

3. Hire a team of experts

If you’re going to get divorced, you’ll need an A-Team of experts to ensure you end up in the best financial situation. A good team will help you coordinate all the moving pieces and help reduce your stress and anxiety. Getting divorced can be one of the most stressful times in your life, and that’s why it’s so important to surround yourself with supportive people with your best interests in mind.

Who should be on your team?

• A family lawyer
• A financial planner
• A tax advisor
• A mental health counselor for you and your children

You may also need….

• Real estate professionals such as a mortgage broker or realtor
• Forensic accountant
• Private investigator
• Appraisers for business assets, like personal property or intellectual property

Make sure to get to know your own advisors. Having skilled advisors you can trust can save your money in the long run by reducing litigation costs and helping you avoid costly mistakes, in addition to providing the emotional support you need.

4. Make sure your settlement agreement is financially sound.

Work with your lawyer, financial advisor and tax professional to ensure your settlement agreement is in your best interests.

Once the divorce is final, it’s important to make sure you have a sound financial plan. For example: can you afford to keep the house or apartment? Consider your mortgage, property taxes, maintenance, insurance.

5. Create a post-divorce financial plan

Whether you’re married, divorced or single, it’s essential to plan the trajectory of your financial life. You may want to consider the following:

• What your future standard of living is. Will it go down?
• What your future expenses will look like
• How your budget might be affected by settlement negotiations
• How you might make ends meet without child support payments
• Whether you plan to claim social security based on your spouse’s records
• Whether you’ll need to update your financial plan, including your retirement plan

Plus, don’t forget to cover the basics: change your passwords to all your financial accounts, plus update your estate plan and beneficiaries.

How much does a divorce cost?

The cost of divorce will depend on your specific circumstances. In fact, the cost of divorce ranges widely, depending on your assets and level of amicability. Some divorces may cost as little as $500, while others may go into the tens of thousands or more.

Divorce may run between $5,000 to $20,000 for most couples. Some of the most common divorce-related expenses include:

• Attorney fees
• Court-related costs
• Early neutral evaluation fees
• Mediation costs
• Refinancing your home
• Record deed fees for your home
• Costs for any external team members you may need, like a tax consultant or financial planner

How do finances get split in a divorce?

Dividing your family’s property during a divorce may be one of the most difficult and complicated parts of the process, especially if you and your partner have significant assets like houses, rental properties, stocks, or pension plans. Deciding who should get what asset can be a big challenge, even if the divorce is amicable. If your divorce isn’t amicable, it can be even more difficult.

Assets should not – and will not be – divided based on their current dollar value. And before you think about dividing assets, you need to understand which assets will fit your short-term and long-term financial security. In addition, remember it’s important to understand the asset itself as well, including any tax implications.

Before we dive into this topic any further, we need to discuss the differences between Separate Property and Marital Property. This is an area many people find difficult to understand, and it’s critical to your financial wellbeing.

Separate Property vs. Marital Property

Generally speaking, separate property includes the following:

• Any property you owned yourself before the marriage
• Any inheritance owned by one person, before or after the marriage
• A gift from the partner or from a third party (for example, your grandmother may have given you a diamond necklace)
• Payment received in a personal injury judgment

It’s important to remember that separate property can lose its status if you mix it with marital property. For example, if you had an apartment before the marriage and added your partner onto the title, it will no longer be considered separate property.

Many people will often believe that certain assets, like a 401K, are separate property, when they are actually marital  property. All property acquired during the marriage is normally considered marital property, regardless of title or ownership. That means pension plans, IRAs, retirement plans, stock options, bonuses, memberships, life insurance, and more are all considered marital property.

In some states, if your separately owned property also increases in value during the marriage, that increase will be considered marital property.

The bottom line: it can be difficult to predict exactly how a divorce will turn out, especially when it comes to finances and assets. Many states will consider additional factors when deciding on assets, like:

• Length of marriage
• Standard of living
• Age and physical/emotional health of spouse
• Income and earning potential
• Income and property brought into the marriage
• Contribution of spouse to the partner
• Needs of the custodial parent to maintain lifestyle for children

How do I protect myself financially in a divorce?

Here are some key points to consider when protecting yourself during your divorce:

1. Get organized. Discover exactly what assets you and your partner own and figure out your liabilities.
2. Open your own bank account. Close your joint accounts. If you need to keep your joint accounts open, make sure both signatures will be required for transactions.
3. Build your own credit. You may need your own credit in the future, and that’s why it’s so important to start building your own, independent credit right away. Consider closing joint credit accounts and call your mortgage lender, if applicable, to let them know of the change.
4. Revise your estate plans. With any major life changes, it’s important to revise your estate documents such as wills, trusts, beneficiary designations, powers of attorney, and advance healthcare directives.
5. Set up a support network. Your financial planner can help you set up a support network with qualified professionals to help you get the best outcome with your interests in mind.

Remember to Ask for Help

There’s absolutely no shame in asking for help when going through a divorce. Whether you need financial guidance, help with childcare or emotional support, don’t be afraid to ask for what you may need.

When you are just starting your journey with divorce, working with an attorney is what most people think of as a typical place to start. A good attorney will help you navigate through the ups and downs of divorce proceedings, but before the papers are filed it’s key to get your finances in order.  A financial advisor can help ensure that you are considering all important financial aspects of the divorce before it is too late.

That’s why it’s essential to work with a financial planner to have all of your assets transferred correctly, and to make sure you have everything to start your new life, financially speaking. That means a new budget, assessment of your financial life, savings goals, and more.