When you’re picking wedding invites and planning an exotic honeymoon with your lover, it’s hard to imagine getting divorced. But divorce happens—although, it is happening at a declining rate.
Divorce rates hit their peak in the 1980s and have been slowing down ever since—one researcher notes an 18% decline in divorce in the millennial generation between the years of 2006 and 2016.
Going through a divorce can be an overwhelming experience. There’s already the emotional pain of divorce, and then partners must also divide up money and assets and break down the financial structure that they’ve built together.
Piled on top of the logistics of divorce, some people may find themselves managing money on their own for the first time in their lives. These added financial stressors can make a difficult situation even harder.
Thankfully, with some thoughtful planning and help, divorce financial planning doesn’t have to be a disaster. And who knows, maybe you’ll end up more knowledgeable on the other side.
For anyone that is wondering how to prepare for a divorce financially, here’s a roadmap to follow. Below, we’ll cover some things you should consider while divorce financial planning.
How Expensive is Getting a Divorce?
Let’s rip the bad news off like a band-aid: Getting a divorce is expensive. According to Nolo, the average divorce costs $15,500 with most of that moola going towards legal fees.
That said, every divorce is going to be different. How much it will cost and how long it will take will depend on a number of factors, such as whether the relationship is combative or civil, how many issues need to be resolved, and how these issues will ultimately be resolved. According to Nolo’s findings, it also depends on where you live and who you hire to assist with the divorce process.
Divorces can range from being hard-fought battles in court to peaceful mediation that happen outside of the courtroom. Either way, when it comes to divorce and finances, the money eventually needs to be split up. Here’s how to make the process of dividing up assets go as seamlessly as possible.
How to Prepare for a Divorce Financially
Take Inventory
The first step is to do a wholesale inventory of everything you and your spouse own—and owe. Writing everything down can help you feel more organized and give you a better idea of the whole picture. Be sure to consider retirement accounts, real estate, cars, and sources of debt, like loans and credit cards.
Write down all current sources of income, including salaries, pensions, Social Security, investment or business income, rental income, and family or other gift money.
If the relationship remains amicable, you may want to do this together. If not, ask your spouse for a print-out or login information to any accounts that you currently don’t have access to.
Gather Documentation
Gather documentation for all of the above-mentioned assets, liabilities, and sources of income.
This includes statements for all bank accounts, property deeds, pension and Social Security statements, and statements for credit cards, mortgages, and any other sources of debt.
Also, make copies of all legal documents, such as a will and/or trust formation documents.
It may be helpful to have one designated place that you keep all of your documents, such as a binder.
Take some time to look at whose name is on what. For example, are you both listed on the mortgage? Are you named as each other’s beneficiaries on life insurance policies and retirement accounts?
The documents that you’ve gathered will become important again later when you need to split assets, refinance loans, remove co-signers, and adjust beneficiary information.
Track Your Finances
If you haven’t already, take some time to look over how much you’ve been spending each month—and on what. There are apps you can use to do this, but you might want to consider something more comprehensive, such as putting all of your spending information into an excel spreadsheet.
By looking into you spending with a magnifying glass, you’ll learn how much money is dedicated to joint monthly expenses, how much money you are spending on yourself, and how much goes to the kids.
With this information, you are able to make projections about what you’ll be spending on your own. This exercise may also guide you in your decision to keep, divide, or request certain assets.
Once you’ve been tracking your spending for a few months, you’ll notice patterns starting to emerge. Then, you can begin to build out your own monthly budget.
Be Frugal
It can be tough to hear, but divorce can be really expensive. Oftentimes, it’s an expense that couples can’t afford to pay for in cash—especially if they were struggling financially before.
If you and your spouse are aware that a divorce is coming down the pipeline, it’s a smart idea to shift into frugal mode. Now might not be the time to make large purchases, either individually or as a unit.
Divorce can be a good time to eliminate or pare back where possible. For example, cancel unused subscriptions and memberships, attempt to dine out less, and use the clothes that you own. There are tons of creative ways to be frugal—do so in a way that aligns with your values.
Think Long-Term
Throughout the haze of divorce, it can be hard to think about anything except for what needs to get done today. While it is a perfectly reasonable strategy to take the process day by day, do remember to take a step back and think about which assets will best serve you now and into the future.
For example, think about the long-term costs of keeping the family home. Will this be possible with just one income, or does it make more sense to sell the home and find something smaller or more affordable? Thinking realistically about the costs associated with being single could save heartache down the road.
Hire Help
You don’t have to do all of this alone. In fact, don’t be surprised if going through a divorce takes an entire team. Many people will find it helpful to seek out financial advice during divorce.
While it is certainly possible to do this on your own, a financial planner can assist with tasks such as making sure that all assets are divided, transferred successfully into new accounts, and reinvested, if necessary.
A fee-only financial planner specializing in divorce could be your best bet. “Fee-only” simply means that the financial planner will only charge a one-time fee or hourly rate to meet with you, as opposed to taking a cut of your overall wealth. This generally makes the most sense if you don’t require ongoing services.
No matter what type of financial planner you use, ask whether that person will be acting as your “fiduciary.” This means that they will always act in your financial best interest.
Open New Accounts
As you split up bank accounts, it is a good time to re-assess whether you like the banks you currently work with. A divorce can be a good time to move or consolidate money into new bank accounts.
At a minimum, people should generally have a checking account, a savings account, and a retirement account. You can keep them where they are or move them to a new bank or institution. As you are rearranging bank accounts, it is worth considering using an online-only account for your savings.
Additionally, you could consider a checking and savings account like SoFi Checking and Savings®. With SoFi Checking and Savings, withdrawing cash is fee-free at 55,000+ ATMs worldwide (subject to change).
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