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None of us likes to think about dealing with finances after a personal crisis. But the chances are high that at some point in life, you’ll face one of what I call the “three Ds.” Today we’re going to go over the first big one: Divorce.

I’ll never forget the time a recently divorced client walked into my office, terrified because she had never had to handle her own finances before. She realized as she was splitting from her spouse, she had no clue where her money was or how to straighten out her financial picture. We got her on track, but at first, she felt very blindsided and bewildered.

Confusion when facing a divorce is common, whether you saw it coming or not. It’s a challenging period, and finances are the last thing you want to face during a separation. When your heart’s broken, you probably aren’t thinking about the future, but money uncertainty only exacerbates the stress. No one believes it will happen to them, but with a divorce rate in the U.S. hovering between 40-50%, it’s common. Here’s what you need to know about your finances during a divorce.

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Navigating Finances During Divorce

Divorce is never a topic that we like to discuss, but it’s essential to familiarize yourself with what you’ll need to know about divorce, just in case. I’ve seen so many clients experience the ending of a relationship suddenly and seemingly without warning. Not only are they trying to navigate the heartache that comes from a split, but many times they’re terrified about the financial ramifications.

Even if your relationship seems healthy and you’re sure it will never happen to you, it’s a good idea to address the critical financial questions long before you need to. Managing your finances is especially important if you have children, are dependent on your spouse’s income, or have significant shared assets (like a house, investments, or a business).

Many couples comfortably share financial responsibilities, and for some, that means taking a hands-off approach. Still, even if you aren’t the breadwinner or the bill payer, you should have a cursory knowledge of your financial landscape. You never know what can happen. I’ve seen many clients left high and dry because they didn’t think the worst would happen to their marriage.

Should the worst occur and your spouse drops a “divorce bomb” in your lap, it’s essential to immediately shore up your financial picture. It feels impossible with a broken heart, but in a few months, you’ll thank yourself that you protected your finances during divorce.

The Divorce Financial To-Do List

To help you navigate through the process, I’ve created a divorce financial to-do list below. Keep in mind that everyone should take some of these steps, even those in seemingly stable relationships. For example, having access to copies of important documents is a good idea for everyone in any situation.

If your divorce has come suddenly or your relationship is heading into a separation, don’t wait. Start to tackle the items on this list right away. It’s tempting to drown your sorrows for a while, but it’s especially important to act if you were blindsided. That means your spouse has had time to plan and get their side in order.

This may sound like tough love, but you need to take care of yourself right now, and focusing on this to-do list will help you do just that.

  1. Get Specifics and Know Your Rights

Educate yourself fully about the laws in your state surrounding divorce. Look at the rules on asset division, spousal support, and, if applicable, child support.

2. Get Professional Assistance

From there, you’ll want to make sure you have the legal and financial support to help you navigate. Have your financial planner or accountant work with your divorce lawyer. A mediator may also help you with a divorce settlement to help you develop and protect your plans for a comfortable future and retirement. Your financial professional can help determine your post-divorce budget and investment strategy.

3. Ask Yourself About the Future

It’s difficult, but you must ask yourself how you will live during the divorce. In some states, divorce can even take years. How will you pay your bills? What’s your financial lifestyle plan? Then, on a more hopeful note, ask yourself how you want to build your life after the divorce. What do YOU want your new life to look like?

4. Get Copies of Important Documents

Do whatever you have to do to get copies of as many important documents as possible. A list of documents you should retain include:

  • Tax returns
  • Loan applications
  • Wills
  • Trusts
  • Financial statements
  • Banking information
  • Brokerage statements
  • Loan documents
  • Credit card statements
  • Deeds to real estate 
  • Car registrations
  • Current year-to-date paystubs (for both parties)
  • Tax-assessed values of any property or current real estate appraisals (less than six months old)
  • Records to verify separately owned property (inheritance/family gifts).

5. Gather Shared Business Documents

If you have any joint business ventures with your spouse, you’ll need to gather all documents about the business as well. If you own your own business, check your state laws to ensure your spouse wasn’t on any ownership paperwork. If they are, you will need to get the advice of a lawyer as you detangle the arrangements. You will need three years of documents for the legal proceedings (personal and business) in most cases.

General business documents to gather:

  • Year-end profit & loss sheets
  • Balance sheets
  • Business articles of incorporation
  • Business tax and legal documents
  • Three years of financial statements

6. Get Clear on What is Owed

Now it’s time to figure out what you both owe in terms of debt. Depending on your state laws, you may be responsible for your spouse’s debt (even if you didn’t know about it). It’s best to consult with a legal expert about the extent of your responsibilities and obligations for the debt.

Areas of debt to examine:

  • Debt incurred through joint-issued credit cards
  • Loans (even if you did not benefit from the debt)
  • Home equity loans, HELOCs, and reverse mortgages
  • Outstanding child support, liens, legal fines, and tax debt

I generally advise my clients to obtain a full credit report to ensure there are no hidden surprises they discover when their ex-spouse is long gone. AnnualCreditReport.com provides a free credit report upon your request once a year from the three Federal credit bureaus: Experion, TransUnion, and Equifax.

Consider closing any joint credit accounts and shift to single accounts as soon as possible. Even amicable splits can get expensive, and you don’t want an ex-spouse’s credit score to affect your credit rating adversely.

7. Make Sure You Are Treated Fairly

This post-divorce checklist item takes some mental work. One of the most difficult changes during divorce is when you realize you need to start looking out for number one: YOURSELF. Depending on your state laws, length of your marriage, and other factors, you may be entitled to half of their assets acquired during your marriage or brought into the marriage.

Did you put your spouse through graduate school, law school, or medical school? If you worked to pay for their education, you might be entitled to reimbursement for a portion of the tuition. Examine all investments you made together.

I’ve had clients say, “I don’t want any of it,” or “I just want to be done.” But what I often remind them is that even if you have no interest in those assets, you may be able to trade them in for something else that you DO want. Think of the future you are going to build and set yourself up for success.

8. Check Social Security Benefits

Divorce amongst retirees is no longer uncommon. Plus, people are living much longer and enjoying a second life after retirement. Once you reach age 62 (or your full retirement age), your ex’s earnings history may provide you with a more considerable Social Security benefit than you would receive based on your earnings. Check to see if your spouse’s earning history is a better option for your Social Security benefits.

9. Update Account Registration Types

Consider how you will need to change the registrations on any financial accounts you jointly own. Ownership changes typically require specific documentation, so you may not be able to change some items without an official divorce certificate. You may also consider speaking with a tax advisor or other financial professional before making any big moves, as they can advise you of the best time to change and shift accounts.

10. Update Your Estate Planning Documents

Review your will and estate plan, including beneficiaries named on insurance policies and retirement accounts. If you have a living will, you will want to change the proxy and your preferences (if it is your ex-spouse).

Getting Through to the “New Normal”

If you’re facing a divorce, it’s common to feel really frightened, hopeless, and alone. Taking control of your finances will help you win back the confidence you’ve lost. You can do this, and with the right support, you’ll face an even brighter future. Remember that when relationships end, it’s usually for a good reason.

It’s certainly normal to feel…abnormal right now. If a divorce was not hard enough to figure out your ‘new normal’, let’s add an advanced finance class into the mix! It is complicated to navigate the waters when you’re reeling from a divorce, especially if it was unexpected or sudden. Of course, no one goes into a marriage thinking that divorce will come one day; if that were the case, who would ever take the leap?

With all this in mind, no matter how healthy your relationship or how happy you are, you owe it to yourselves to be in the know at all times. Even if one of you is the primary handler of finances, you both must stay informed and involved when it comes to money.

Navigating life after a divorce will be a whole new world for you, especially if you’ve not been single for a long while. But think about what you want out of life, your money, and your future. What kind of dreams do you have that you’ve held back up until now? Find things to look forward to and plans for your newfound freedom. It may seem dark now, but it will get better.

None of us has a crystal ball or knows what life will throw our way, but if you can plan for the three Ds (the worst-case scenarios), you’ll rest assured that you’ll be protected even if the unthinkable occurs. There are several helpful tools, including my three-part series of checklists for planning in the resource library.

Please tune in for the next post when we discuss the next in our series on navigating through the 3 Ds. We’re going to cover planning for and handling one of the most difficult personal crises—one even tougher than a divorce. Don’t miss this critical guide to getting you through a MAJOR catastrophe.

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