How To Financially Prepare for Divorce

Nothing about divorce is easy, especially when it comes to money. Whether you earn a high income or you’re a stay-at-home spouse, you’ll face financial challenges during a divorce.

To financially prepare for your divorce, start by taking stock of your current financial situation. You may want or need to set up new bank accounts, while also updating old ones. Luckily, you’re not the first person who’s had to figure out how to prepare for divorce, and we’re here to help you figure out your finances.

Take Inventory of Your Finances

Your first steps in financially preparing for a divorce should include consulting with a lawyer, determining costs, and finding out what you have.

Talk to a Lawyer and Determine Costs

A divorce attorney can guide you on your state-specific laws, represent you during the divorce process, make sure you get everything you’re owed from your former spouse, and ensure you aren’t giving up too much in the process, either.

“Never forget that the divorce agreement is the most important contract you will ever enter into and will have financial ramifications that extend through the rest of your life,” CiCi Van Tine, a divorce attorney with Davis Malm Attorneys, told The Balance in an email interview. 

When it comes to estimating the cost of the divorce, having an open and honest conversation with one or more attorneys can help you learn about their rates, what might be required for different situations, such as a contested or uncontested divorce, required court fees, and any other costs, according to Van Tine.

Get a Copy of Your Credit Report

Having good credit is important anytime, but especially when you’re starting over and may need to rent an apartment, buy a home, or take out other new debt. To make sure you don’t have any surprises thrown your way—like an account your former spouse opened in your name—make sure to check your credit report. 

If you check your credit score, you’ll also have some idea of what options may be open to you during divorce, such as getting a good interest rate on a new mortgage. It’s also a good idea to set up a credit freeze to prevent any unwanted debt from appearing on your credit report in case your former spouse tries to impersonate you and/or use your credit cards or accounts. 

Gather Your Personal and Financial Documents

You’ll need a clear picture of your finances to use as evidence during the divorce proceedings and to develop a plan for after the divorce is final. It’s a good idea to keep this information backed up in a couple of safe places. 

Here are some of the most important financial and personal documents to round up:

• Marriage certificate
• Tax returns from the past three years
• Recent statements for bills, property taxes, and utilities
• Recent statements from your bank and investment accounts
• Your current budget (or a list of monthly and annual expenses)
• Recent statements for any income, like pay stubs, government benefits, or side hustle income
• Registration and title information for any property, like your home, car, or recreational vehicles

Financial Steps To Take Before and After Divorce

Once you have a complete picture of your current financial situation, you can start thinking about where you might be able to go and what steps you’ll need to take to get there.

Open New Bank Accounts

A good place to start is with new bank accounts in your name only, if you don’t already have any. This will provide a place for the cash you’ll be splitting up later, but it also has another use even before you formally start the divorce process.

“If there is a risk that your spouse will lock accounts or divert funds, make sure you have enough money on hand for your immediate bills and an understanding of how much you will need moving forward for when you are able to get into court and obtain financial orders,” Van Tine said.

This important step will help protect you financially so that you can ensure your comfort and safety if your former spouse decides to make things difficult for you. 

Create a New Budget

A strong budget is another thing that’s good to have at any time, but especially when you’re just starting out again. With this budget, you can estimate two things: How much you’ll need to reestablish yourself (such as rental housing deposits and a down payment on a vehicle), and what your financial situation will look like over the long term. 

This will help give you a realistic idea of what you can afford on your own and what you might need to change to make ends meet. For example, you may need to earn a higher income, reduce your post-divorce living expenses, or seek out financial assistance.

Create an Emergency Fund

An emergency fund is more important when you get divorced than ever, especially since you don’t have your spouse to rely on anymore. If you lose your job, get injured, or your car breaks down, an emergency fund can help you pay for the unexpected costs.  

Most experts recommend saving three to six months’ worth of living expenses in an emergency fund. The riskier your financial situation, the more you should gravitate toward the higher end of that range. For example, if you were a stay-at-home spouse with no income, you’ll need make sure you can cover living costs for at least a few months while you apply for jobs.

Take Action With Joint Debts

Consider paying off any debt you have before you file for divorce, if that’s an option. If not, other options include having one person refinance the debt into their name only, or keeping it as a joint account. 

Keep in mind, though, that if it stays as a joint debt, you’re still legally responsible for it according to the loan contract. Even if the divorce decree directs your former spouse to make the payments, your own credit could still be impacted if your former spouse refuses or is unable to pay it. 

Figure Out Your Insurance Needs

Insurance is designed to protect you against financial ruin, and now that your financial situation has changed, those threats will be different. Before your divorce is final, revisit your coverage for all of your insurances, including auto, home, life, disability, health, and more. For example, you may need to find alternative health insurance coverage if you were originally on your spouse’s plan.

Update Your Estate Plan

Estate plans run the gamut from formal plans and wills all the way down to something as simple as who you’ve listed as the beneficiary on your financial accounts. Updating your estate plan is one of those things that can get overlooked in the divorce process, but it’s important to remember.

“You don’t want to have a situation where your soon-to-be ex-spouse inherits money you would prefer to go elsewhere,” Van Tine said.

Remember to update your estate plan so that you are the one making decisions about your legacy, and not your ex-spouse. This includes changing your power of attorney and health proxy, and who will receive life insurance if you were to die.

Frequently Asked Questions (FAQs)