The Divorce To-Do List
When most couples make that vow, they don't think that divorce is a possibility. But statistics reflect that a significant number of marriages don't last. While couples often spend countless hours planning their wedding, many spend far less time preparing for a divorce. This can make an already challenging time even more difficult.
While every marital breakup is different, there are certain steps that couples should take before separating. By investing this time, they may avoid significant negative financial repercussions.
It is prudent to know what comprises your marital estate. The following can help you educate yourself.
Follow the money: In most marriages, there is a division of labor. One person might do the cooking and mow the lawn, while the other one might do the laundry and pay the monthly bills. Even if you aren't the household CFO, you still need to understand what accounts exist, how they are titled and how they are managed. You should be able to access any accounts on which you are titled. If account passwords are changed regularly or have been changed since you've last looked at the accounts, make sure you know the new ones and where they are kept.
Create a file: Make sure that you gather and make copies of all financial documents. This includes bank, brokerage and retirement statements, tax returns and real estate documents (deeds, mortgages, closing statements, etc.). Keep a duplicate copy of this file in a secure location outside of your home.
Check your debt: Any debt incurred in the joint names of the parties will remain the joint liability of the couple. You should pull at least one credit report on yourself so that you know what liabilities are in your name and whether they are jointly or solely titled debts.
Protect your beneficiaries: Review retirement and college-saving plans, as well as insurance policies to determine what needs to be changed to protect children who are still minors. If you decide to name a child as a beneficiary, you may choose to select a guardian who is not your soon-to-be-ex.
Be discreet: Be cautious when reaching out to people who handle your family's money. Understand that if you speak to jointly-used estate planning attorneys, financial professionals, and tax preparers/accountants, they may be professionally obligated to tell your spouse about discussions that you have had with them.
Consider credit ties: If your marriage is in trouble, consider whether you want to continue sharing credit card accounts. Having joint accounts gives you transparency, so that you know how much your spouse is spending and on what; but if you are concerned about accruing significant debt there are steps you can take. If your spouse is an authorized user on one of your cards, you can ask the issuer to remove your spouse's name from the account. If you are joint obligors, you can ask the issuer to freeze the account. While this will keep you from being able to use the account, it will also prevent your spouse from running up charges for which you may be responsible.
Think ahead: You should figure out how much you'll need to live on during the separation and after the divorce. For a period of time, you and your spouse will have to maintain two households on the income that was used to support one - that will cause financial strain for most families. Estimate your future expenses so you can avoid incurring debt that you can't afford. This due diligence can influence how you negotiate the divorce settlement.
Going through a divorce can cause a tremendous amount of emotional pain. But as hard as it may be, putting aside your emotions and taking steps now can reduce the possibility of significant financial pain later. This requires gathering information, seeking guidance from experts, and taking action when necessary to protect your interests.
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