The cost of divorce

Divorce can be hard enough with all of the emotions at stake, but then there's the added layer of financial stress. Money might be the last thing on your mind, but it's important to consider how separation will affect your finances. 

Knowing the preparatory steps to take and understanding the rules for splitting debt and property when a marriage breaks down can help you avoid unnecessary complications and headaches. Here's what you need to know to effectively navigate the financial messiness that can accompany divorce.

How can you prepare your finances for divorce?

If you think divorce might be on the horizon, "one of the best things you can do for yourself is to get your financial house in order," according to Kiplinger. This will "put you in a better position to negotiate with your soon-to-be ex and make the case for what's reasonably owed to you" — though there's still no guarantee that being prepared will make things more amicable.

Make sure you have access to your accounts, and gather any relevant documentation such as recent tax filings, real estate deeds, car registrations, recent pay stubs, and your credit report. Take stock of your assets — there are the obvious ones, like your house, retirement accounts, and savings, but you'll also want to consider any family money or assets that you or your partner brought into the marriage, business assets or income, and retirement accounts from past employers.

Next, bring in the professionals. You and your partner may consider a mediator to help with negotiations around splitting assets and hopefully avoid a long, drawn-out battle. It's "prudent to involve a qualified financial adviser who can assess your financial position as a couple and then help you transition into the new realities," Kiplinger says. You might also turn to an ERISA (Employee Retirement Income Security Act) specialist for help dividing your retirement plan savings equitably and without incurring tax penalties.

And even if things are still in early stages, remember that it's never too soon to start looking ahead toward determining a realistic budget for yourself once you're separated. When your divorce becomes final, you'll want to be ready to start crafting a financial plan that takes into account emergency savings, an investment strategy, a retirement strategy, an estate plan, and, if it applies, a college savings plan for your kids.

What happens to debt when you get divorced?

Part of the process of divorce is coming to an agreement on how to divide everything up, and that includes debt. In an ideal world, you'd be able to pay off your debt either prior to the divorce or before it's final. Kiplinger offers some tips for bringing this goal closer to a reality:

• Determine who's responsible for the debt. With some debts, like student loan debt, it's pretty straightforward to figure out who's responsible. But other debt, such as credit card debt, can be trickier. "Debt incurred during a marriage is generally the joint responsibility of both parties, as long as both are co-signers on the credit cards," Kiplinger explains. If you live in a community property state, however, both parties are responsible for debt incurred during the marriage — even if just one person created it.
• Decide on a deadline for debt payoff. "It will be nearly impossible to divide your debts if they continue to grow," Kiplinger points out. You'll want to determine a date after which you and your partner will no longer incur joint debt. Then, after the separation, treat any debt incurred on credit cards as the responsibility of the person who made the charge. An even easier solution is to close those joint accounts (or at least have your name removed from them) and open new accounts that are just yours.
• Come up with a plan. It's important to make a plan for how you'll pay down your debt — it's not just going to disappear. You might transfer portions of debt onto individual cards and then cancel those joint cards. Or, you could use joint savings or sell a car or other asset to pay off outstanding debts. Another possibility is taking out a home equity line of credit on a jointly owned home.
• Don't forget to protect yourself. One way to do this is by getting a copy of your credit report. You can then compare that against the list of debts you've created, to ensure each one is accounted for and assigned. Remember that you could still be on the hook for outstanding debt post-divorce, regardless of whether your spouse said they would cover it. And "even if you disagree on responsibility for a debt, continue to pay all minimum payments on credit card accounts that bear your name," Kiplinger says. "Failing to do that could compromise your credit score and adversely affect your credit history down the road."

What about divvying up property?

As you get into the weeds of the division of assets and debts, it's helpful to understand the distinction between what's considered marital property vs. separate property. Marital property, which is typically divided equitably or equally in a divorce, includes "any salary, bonus or earnings, retirement contributions, homes, businesses or cars purchased during the marriage by either spouse," Kiplinger explains. Separate property, on the other hand, is any property that either spouse owned or acquired prior to the marriage. This isn't property that's likely to get divvied up.

And of course, in reality, things aren't always so black and white. Factors like wealth, appreciation, gifts, and the length of a marriage can muddle the process of labeling property as separate or marital, Kiplinger notes.

Reclaiming financial independence

With one chapter ending, it's time to get ready for your next one to unfold. To make your financial future one you feel empowered by, here are a few pointers from Kiplinger to keep in mind:

• Revise your budget based on your new reality.
• Decide what costs you can let go of as your financial situation shifts.
• Make a plan to build up your credit, and recover from any post-divorce damage.

Don't forget to allow yourself some time to grieve your loss, and to give yourself credit for making it through to the other side.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week's sister site, Kiplinger.com

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