How to Financially Prepare for a Divorce

Divorce is a complicated process that can stretch over many months or even over the course of a year or more.  Your financial obligations during this time, however, will not be put on pause.  So it’s extremely important to know how to prepare for a divorce financially. Bills will need to be paid with continuity, despite the fact that your prior financial status with your soon-to-be ex-spouse is suddenly in upheaval.

In the interim, the responsibility for who pays what bills will need to be worked out by your divorce attorneys. While the divorce is pending, you may not have as much money coming in – so it helps to have saved as much as you can, budget properly, and avoid making any major financial decisions until your divorce is resolved.

Likewise, you deserve financial security once your divorce is finalized. It’s important to have a divorce attorney who will advocate on your behalf, fighting for the best possible outcomes in asset distribution and as support agreements are negotiated in the divorce process. The goal is for you to land on your feet with enough stability to move on with your life post-divorce.

Why is it Important to Know How to Prepare Financially for a Divorce? 

While the divorce is pending, both parties are to some extent expected to maintain the basic living expenses of the household.  This includes rent or mortgage payments, regular monthly expenses like groceries and utility bills, shared car payments, credit card bills, and any other regular monthly expenses for the family.  In New Jersey, the responsibility for paying bills while a divorce is in process can be handled in several ways, and cooperation can definitely make this phase of the divorce easier. 

Even if there are disagreements over paying bills while divorce is pending, the expectation is for both parties to pay expenses, maintain assets and debts, and to continue to contribute as usual until the divorce is finalized. In this respect, your divorce attorney can assist you in how to prepare for a divorce financially.  Sometimes, these pending arrangements can be formalized into a document known as a separation agreement.

Why is it Especially Important to Know How to Prepare Financially as a Woman? 

While it’s certainly not true for all couples, on average women statistically earn less than men. Most research institutions recognize a pay gap, with women earning about 85 percent of what men earn in comparable positions. Women are also more likely to experience career setbacks during the early years of raising children, and those effects may be lingering.  Again, this is not true for every couple, but these discrepancies can be significant, so an alimony lawyer will need to address them when applicable. 

You should expect that your husband will fight aggressively for his share of any income and assets. For that reason, financially preparing for a divorce is crucial. The stronger and clearer your financial situation is during the divorce, the better you are able to contest your husband’s financial demands.The good news is that there are ways to level the financial playing field during the divorce. Our skilled lawyers will help you obtain the temporary alimony and temporary child support you need. There also are less expensive alternatives to litigation. Many divorces are resolved through negotiation, mediation, or collaboration. All of these methods are cheaper and faster than contested trials.

Here’s How to Financially Prepare for a Divorce in 5 Steps 

Before you meet with your divorce attorney, it’s important to do everything you can to prepare for your initial consultation.  Good preparation can expedite the early divorce process, which could save time and money in the long run.  Knowing how to prepare for a divorce financially is an essential component of this preparation. The following steps, then, can help both you and your attorney to hit the ground running.

Step 1: The Essential Financial Document Audit 

A critical part of financially preparing for a divorce is to gather all your financial records. This includes the following documentation:

• Identify all of your assets such as bank accounts, retirement accounts, vehicles, personal property, and other assets. You should know which accounts are in your name, which accounts are in your husband’s name, and which accounts are in both names.
• Identify which credit cards you have, how much is owed on each card – and whether you individually or you and your spouse together owe the credit card company
• Collect any pay stubs.
• Find your copy of any existing prenuptial agreement.
• Find your federal and state tax returns for the past three years.

This documentation will help you identify which assets you can use immediately. The documentation helps your divorce lawyer understand your financial situation and what assets you are likely to keep after the divorce. A full financial picture also helps your lawyer understand what documentation she needs to demand from your husband.

Step 2: Create a Realistic Single-Income Budget 

As soon as you anticipate that you will be seeking a divorce or your spouse may be seeking a divorce, you should create a new budget to financially prepare for a divorce. The budget should identify all your sources of income on a weekly and monthly basis.

You should itemize all of your expenses such as the mortgage or rent, food, health care costs, transportation, utility bills, entertainment expenses, and other expenses. The budget should also include items such as car and home repair costs and the cost for vacations and holidays. You’ll need to itemize these expenses for you and for your children.

Step 3: Protect Your Assets and Credit Reputation 

Now is the time to establish financial independence. If you haven’t already, open separate accounts for banking and credit, and update your bill payment arrangements to reflect these changes.  

Check and secure your credit report. If you and your spouse shared credit cards, it’s important to pay off debt as soon as possible and close any joint accounts. Both of you remain legally responsible for any shared debts, including your mortgage, during and even after the divorce.  Continually monitor your credit and promptly dispute or report any inaccuracies to the credit reporting agencies.

Step 4: Strategize Long-Term Financial Security 

Your primary concerns are to first establish financial stability in order to maintain an acceptable current standard of living for you and your dependents, and second to plan for stability in your later years. 

Your divorce attorney will seek all available avenues for spousal support, which may include a combination of open or limited duration alimony along with rehabilitative alimony, which helps you update education or employment skills to overcome any limitations to your earning potential.

Address Retirement Assets

What about retirement? The court will also consider financial assets and liabilities that have or will continue to accumulate before, during, and after your marriage.  This takes into account more than just your combined earnings and debts, but also your pension and anticipated social security benefits, even if your retirement is years or even decades away. The court may issue a qualified domestic relations order (QDRO) to clarify the division of marital property during a divorce.  If one applies in your divorce case, you or your spouse may be forfeiting a portion of your retirement benefits

Evaluate the Marital Home

It’s also time to evaluate the marital home. Upon its sale, how much equity will need to be divided? Or can you afford to keep it? You will work with your divorce attorney to explore your options to do so as part of the settlement with your ex-spouse, or to assess and factor into the divorce settlement the costs of establishing a new residence.

Step 5: Prioritize Legal Consultation 

There’s a lot to consider about how to prepare for a divorce financially.  That’s why it’s essential to start with quality legal representation.  You don’t need to have all the answers, but you’ll definitely want to work with a professional who can help you find them. It’s true that legal fees are important considerations, but you may come out ahead in the long run when you prioritize legal expertise, especially in high-asset divorce cases.

Navigating Post-Divorce Financial Hurdles 

Once your divorce is final, there are some necessary actions on your part to protect your financial health moving forward:

Health Insurance After Divorce 

It’s never a good strategy to save money by eliminating insurance premiums, choosing to be uninsured or under-insured for healthcare.  If you were covered under your ex-spouse’s healthcare plan, determine your end of coverage date, and either sign up for COBRA benefits, meet with your benefits coordinator to discuss options offered by your own employer, or explore plans offered on the ACA Health Insurance Marketplace.  

Reviewing and Updating Your Estate Plan 

Once your divorce is final, you will need to update wills, estate plans and beneficiaries.  Your children may now be taking on new roles, perhaps as an executor of your estate, or be given power of attorney in place of your ex-spouse.

Tax Implications of Filing Separately 

In a standard divorce decree, the typical agreement is for both parties to equally share tax obligations. Your tax filing status depends on whether you were married or unmarried on the last day of the year.  If your divorce is finalized by December 31 of the tax year, you will select the filing status Single or Head of Household (if you meet eligibility requirements). If you are still married on December 31, you and your spouse can choose to file a joint return if it reduces your tax obligations.  

The Best First Step You Can Take to Prepare for a Divorce is to Consult an Attorney 

When you are separated and need help paying bills while a divorce is pending, and as you contemplate your financial future post-divorce, it’s imperative to seek the assistance of a skilled divorce lawyer.  Contact DeTorres & DeGeorge today to ensure you have the legal advice you need during your divorce. We’re ready to seek temporary orders to stabilize your finances while the divorce is pending.  We are experienced at helping you to financially prepare for a divorce, assessing your full financial situation and goals – and your spouse’s full financial situation – and helping you plot a course toward financial stability.