Untangled: Separating Finances During Divorce
Talking about money and separating your finances doesn’t get any easier because you’ve decided your relationship is over. Arguments over money are one of the top reasons couples get a divorce. And depending on where you are in the process, asking questions and looking for documents can trigger suspicion and questions.
For many couples, joining finances when getting married is a big concern. For divorcing clients that we work with, separating their finances in anticipation of divorce is twice as difficult. It’s hard to know what to do, when to do it, and whether you should wait until your divorce is final.
If you have already filed for divorce, there may be legal rules around what you can and can’t do, so make sure you understand the rules in your state. Here are a few helpful tips for you to get through this emotional time. You’ll gain knowledge and confidence that you need to move forward owning your financial future.
Tip #1: Know what finances need separating during the divorce
Although times may have changed, we still find many instances where one spouse handles most of the money, accounts, bills, and financial decisions. This can be especially true if there is only one income in the household. Often, the working spouse is the one who takes care of everything. When thinking about and planning for divorce, the other spouse needs to take ownership of learning about the family finances.
Start to gather a list of important documents. Items like tax returns, pay stubs, mortgage statements, real estate deeds, car titles, and credit card statements are very important. Ask about and gather investment account statements, including retirement accounts at current and past employers.
It’s good to know who is named on what accounts. If you own real estate – how is the title held? If you own cars – who are on those titles?
Beyond the obvious – who is on the Costco membership, the cell phone plan, and the Apple Family account? Whose Amazon Prime account are you using, and who is paying for the satellite radio and the streaming TV services? Who is covered under whose health insurance?
What company issues your auto and homeowner’s policies and what happens if one of you moves out of the family home? For example, we recently worked with a client who used USAA for home and auto.
When the primary USAA member called to find out what happens when the couple gets a divorce, they said that since he had already moved out of the home, each spouse needed to get separate auto policies and the homeowners insurance needed to be re-issued in the other spouse’s name. If something had happened during that time of separation, it’s likely the claim would have been denied because they were no longer part of the same household.
Tip #2: Get a handle on your income and spending
There are only two ways to make two households as financially stable as one – earn more money or spend less. If you are the spouse that has earned less, start thinking about ways you may be able to increase your income over time. If you are the spouse that earned more, understand that you’ll likely have to pay child and/or spousal support for a period of time. Many calculators are available online for you to estimate. If you google them you can find out what the guideline expectations are in your area (if any).
Start thinking about who pays what bills and how they are paid. Do you know how much you spend monthly on housing, food, clothing, utilities, debt payments, taxes, and insurance? Has one spouse moved out and is paying for temporary housing? It’s a given that paying for two households is more expensive than one so you need to know if you will have positive cash flow when you get divorced.
In the interim timeframe between when you decide to divorce and it is actually final (which can be YEARS…), you’ll need to agree on separating these finances – who pays what, how to split child expenses if you have them, and whether someone should be paying spousal or child support. It is easier if you can agree on this without having to rush into court for an emergency temporary support order.
Tip #3: Understand your credit and debt situation
Get a copy of your credit report so you understand what accounts are open with your name on them and how much you owe. Before your marriage, is there debt in your name? On the other hand, before your marriage, is there debt in your spouse’s name? It’s likely that person will continue to be responsible for that debt after divorce – regardless of how those bills have been paid during marriage.
On the other hand, check to see if credit cards, car loans, and mortgages are joint. Don’t assume the other person is paying the bills. Make sure to make all debt payments to avoid ruining your credit during what is already a stressful transition. Having good credit will be important when you go to rent an apartment, buy a car, or even get a new job.
Even if debt from the marriage is in one person’s name, if it was taken out during the marriage, it needs to be addressed and divided, paid off, or refinanced during divorce.
It is possible you may be an authorized user on accounts instead of a joint owner. This can limit your responsibility for payment, but the account still shows on your credit report. Take yourself off or ask your spouse to take you off their accounts. Call each of your credit card accounts and find out who the authorized users are on your accounts. It is usually easy to ADD them online, but you may need to call to remove them. It can make sense to remove authorized users when you are going through a divorce.
Tip #4: Get accounts in your own name
If you don’t already have accounts in your name only, you may want to consider opening a checking, savings, and credit card. That way if you need to establish a record of payments on bills or mortgages, or establish receipt of support payments and income, that money is going into and coming from accounts with only your name on them.
You still need to disclose this information during divorce proceedings. These are important steps in establishing standalone finances for the future.
This may feel weird and sneaky. It is possible your spouse will find this behavior threatening if they’ve had financial control issues. This is all the more reason to do it. You will need accounts in your own name as you move forward. No reason not to do it now.
Tip #5: Don’t forget the not-so-obvious
As I mentioned above, it is often the not-so-obvious items that trip couples up. Only you can decide when the right time is to split cell phone plans, Amazon Prime, and Costco memberships. Sometimes it makes sense to do it upon separation, or you could wait until the divorce is final because splitting accounts up usually costs more. However, maybe you don’t want to know where your newly separated spouse is when you look at Find My iPhone, so it’s important to remove them from your Apple Family now. Getting your own separate memberships, plans, and services may be slightly more expensive now, but give you peace of mind.
Separating your accounts and finances is a good first step towards establishing your independence and moving toward your new normal after a divorce.
If all this seems overwhelming and complicated, it can be if you don’t have the right support or knowledge. As Divorce Financial Analysts, we work with clients all the time to help them get through this challenging time in their lives. Feel free to reach out for a complimentary introduction and we’ll see if we can help you untangle your finances.