Financial focus during divorce

Divorce is a complex affair, both emotionally and financially. While it's true that no two divorces are exactly alike, there are some things you can do to smooth the financial road before you. 

How much does a divorce cost?

It depends on which divorce. There's quite a broad range of possible price tags. According to Investopedia, the most expensive divorce in the world was the settlement between Bill and Melinda Gates, an estimated $76 billion. On the other end of the spectrum, LegalZoom says that an extremely inexpensive divorce could cost as little as $500.

Divorces can run somewhere to the tune of $15,000 to $20,000 for most couples. Expenses most commonly include:

• Attorney fees
• Court costs
• Parent education class tuition
• Early neutral evaluations fees
• Mediation costs
• Refinancing costs for your home (if you own)
• Record deed fees for your home (if you own)

6 money tips to help you financially survive a divorce

1. Seek financial advice — If your spouse is the money-manager in your household, you'll need to build some skills before going it alone. Even if you're the one crunching numbers, the financial complexities of a divorce are likely greater than you'd expect. Meet with a financial professional before you file, or as soon as possible if you've already begun.
   
   
2. Take stock of your assets — Find out how much cash you have on hand, in savings, invested and tied up in equity. Note, all your loans and debts, as well as the bills you pay and the income that you and your spouse receive.
   
   
3. Be frugal — This is a time to squirrel away as much money as you can. Save, don't spend. The cash you build up now will help pay your attorney's fees later.
   
   
4. Recall whose name is attached to what — Whose name is on the title of your car? Are you both listed on your loans? Have you named your spouse as a beneficiary in your will or on your life insurance policy? Gather all of the paperwork you have, and make copies.
   
   
5. Prepare to sacrifice — You probably won't come out of this with everything you hope to keep, so prioritize what's most important to you, be fair about it, and choose your battles selectively. Accept that your standard of living is likely to change. While you won't necessarily be starting from scratch, you will be starting over.
   
   
6. Agree to work together — Perhaps the most important way to protect your finances during a divorce is to play nice. If you and your spouse can agree to cooperate as you disentangle your estates, your divorce will cost much less overall, and you'll both be better off.

Financial steps once your divorce is final

Once your divorce is final, there are several steps you can take to help protect your financial future.

1. Establish separate accounts

At the top of your list should be closing any inactive joint bank and investment accounts. Review any joint credit accounts with your soon-to-be ex-spouse and ensure they are closed or the appropriate name is removed from the accounts. If you haven't already done so, consider making a list of your individual property and your debts. Making this list early can help you avoid surprises down the road.

2. Determine your post-divorce income

Look ahead to your life after the divorce and answer a few questions about what your post-divorce life will look like.

• Where is your income going to come from after the divorce?
• If you weren't working during your marriage, are you going to receive alimony and/or child support?
• If so, what amount is needed to support you?
• Will you need to find another job?
• How does your post-divorce budget match up to your post-divorce income?

Take stock of your situation if you are going to receive alimony. If you weren’t working prior to the divorce, do you need to get a job to protect yourself in case your ex-spouse has trouble making payments, or if your divorce agreement sets a date for when the payments will end? Even if you will receive alimony and/or child support, you might consider purchasing a life insurance policy on your ex-spouse. If they died, depending on what assets might revert to you, that income could stop as well. Keep in mind, establishing this policy would require your ex-spouse's written consent.

On the other hand, if you are the one making alimony or child support payments, you have another set of questions to answer.

• How will this impact your monthly take-home income?
• What is the payment schedule?
• How does your post-divorce budget match up to your post-divorce income?

It will be important to keep track of your payment deadlines and to be aware of situations that might change payments. For example, child support typically ends when the children reach a specific age.

3. Set your new household budget

Keeping track of money can be hard during the best of times. It will likely be even harder in the stressful days after your divorce. By taking charge of your household budget, you may be able to avoid incurring additional debt. Make a list of all the expenses for your post-divorce household. See how this expected spending matches your income. Does it look like you can keep the same lifestyle or are you going to need to scale back in some categories?

4. Start your own retirement plan

How were you saving for retirement while you were still married? If you have been relying solely on your spouse's retirement plans, you'll need to establish one of your own. A financial professional will have many options for you. One possible suggestion would be to set up your own Individual Retirement Account (IRA).  

These accounts offer tax benefits, including an income tax reduction from contributions and tax-deferred growth.

If your divorce agreement will divide your shared retirement assets, you might want to consider requesting a Qualified Domestic Relations Order (QDRO) as part of the settlement. This document can allow for the transfer assets from one former spouse's retirement plan into the other's retirement plan without tax consequences.

These are just a few important considerations for rebuilding your new personal financial plan after a divorce. And we know the task can seem overwhelming. Start small. Take stock of your situation. And then find a trusted financial professional or lawyer to help you tackle the rest. Think of this process as a way to help you get a fresh start on your finances and your new life after divorce.

5. Decide what to do with the house

When a divorce happens, it can be difficult to make decisions to give up your home. However, regardless of how you both may feel about your house, getting the issue out and on the table can be an important first step in moving forward with your lives and proactively handling your finances after divorce. If your soon to be ex-spouse has no interest in retaining the home other than money, you may consider having him or her buy you out. A buyout is when one spouse releases their interest in the home in exchange for an agreed upon price.

Another option would be to keep the home and make financial arrangements to co-own the property with your ex-spouse. This option essentially creates a type of a business agreement between the two of you - much like a co-owned commercial business. This may be an option if you both are unable to come to a financial agreement about the house.

Some couples would prefer to simply sell the house and split the profits. While that solution may not be what either of you wants, in some cases it may be your only option if neither one of you can afford to keep up with the mortgage payments. This option can difficult, especially if you have young children at home. On the other hand, selling the house can be viewed as a fresh start.

For more divorce money considerations, visit the post-divorce finances section of our Learning Center.

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