What to consider when you’re considering divorce: financial considerations, banking, credit cards, and debt
Divorce can be an emotionally charged and overwhelming experience, but one of the most practical aspects to address early on is your finances. Whether you’ve been together for a few years or many, understanding how divorce will impact your financial future is crucial. From untangling joint bank accounts to determining how debt will be divided, there’s a lot to consider. In this post, we’ll explore key financial considerations, including banking, debt, and personal financial planning, to help you navigate this challenging time with clarity and confidence.
4 Essential Financial Considerations When Considering Divorce
1. Understand Your Current Financial Situation
What It Is: Before initiating the divorce process, it’s crucial to get a clear picture of your current finances—assets, liabilities, income, and expenses.
Why It’s Important: Knowing your financial standing will help you make informed decisions moving forward and avoid surprises. It’s vital for preparing for negotiations and understanding what you might be entitled to in terms of alimony or division of assets.
Experts Who Can Help: A financial planner or a Certified Divorce Financial Analyst (CDFA) can help you assess your financial situation.
How to Ask for Help: Reach out to a financial professional with a question like, "Can you help me understand my financial picture and prepare for a potential divorce? I’d like to be fully informed on my assets and liabilities before moving forward."
2. Review Joint Bank Accounts and Credit
What It Is: Identify and review all joint bank accounts, credit cards, and loans that you share with your spouse.
Why It’s Important: Understanding the state of your joint financial obligations is essential for protecting your credit and ensuring you aren’t caught off guard by any financial surprises. In many cases, it’s a good idea to open individual accounts to separate your finances before making the divorce official.
Experts Who Can Help: A financial advisor or a credit counselor can provide guidance on how to navigate and protect your credit during this transition.
How to Ask for Help: Contact a financial advisor and ask, "Can you help me set up separate accounts and review my credit situation to make sure I’m prepared for financial independence?"
3. Plan for Division of Debt and Assets
What It Is: Understand how debt and assets might be divided in the event of a divorce. This includes property, savings, retirement accounts, and any joint debts.
Why It’s Important: Knowing how your debts and assets will be divided helps you anticipate your future financial responsibilities and plan accordingly. It’s important to have a clear understanding before entering negotiations or legal proceedings.
Experts Who Can Help: A divorce attorney and a Certified Divorce Financial Analyst (CDFA) can offer insight into how assets and debts are typically divided in your state.
How to Ask for Help: Approach a CDFA and ask, "Can you help me understand how my assets and debts might be divided in a divorce, and what steps I can take to protect my financial interests?"
4. Consider Long-Term Financial Planning
What It Is: Think about your financial future beyond the immediate aftermath of divorce, including retirement plans, health insurance, and future savings.
Why It’s Important: Divorce can significantly impact long-term financial goals, so it’s crucial to start planning for the future—especially when it comes to retirement and any health-related expenses. This will help you adjust to your new reality and ensure financial stability.
Experts Who Can Help: A financial planner or retirement specialist can guide you in adjusting your long-term goals.
How to Ask for Help: Ask a financial planner, "Can you help me reassess my retirement and financial goals in light of the potential divorce? I want to ensure I’m financially prepared for the future."
4 Essential Debt and Credit Considerations When Considering Divorce
1. Review Joint Debt and Financial Obligations
What It Is: Take an inventory of any debts you and your spouse share, including credit card balances, personal loans, mortgages, and auto loans.
Why It’s Important: Understanding who is legally responsible for joint debt after the divorce is crucial. If debts are not properly addressed, you may remain responsible for obligations even after the divorce is finalized.
Experts Who Can Help: A financial advisor or a Certified Divorce Financial Analyst (CDFA) can help you assess shared debt and create a strategy for handling it.
How to Ask for Help: Reach out to a financial professional and say, "Can you help me review all of our joint debts and figure out how they should be divided or handled before divorce proceedings?"
2. Understand How Divorce Affects Your Credit
What It Is: Your credit score may be impacted by divorce, especially if there is shared debt or if you rely on joint accounts that could be left unsettled.
Why It’s Important: Divorce can cause changes in creditworthiness, so it’s essential to separate your credit profile early on to avoid negative effects from joint financial obligations.
Experts Who Can Help: A credit counselor or financial advisor can offer advice on how to protect your credit during the divorce process.
How to Ask for Help: Contact a credit counselor and ask, "Can you help me understand how divorce will impact my credit and what steps I can take to safeguard my credit score moving forward?"
3. Separate Joint Accounts and Credit Cards
What It Is: Take steps to open individual accounts and remove yourself from joint credit cards or lines of credit.
Why It’s Important: Keeping joint accounts open during divorce can lead to financial complications, especially if your spouse continues to use them. It’s vital to establish financial independence early on.
Experts Who Can Help: A financial advisor or an attorney can guide you through the process of separating finances.
How to Ask for Help: Ask a financial advisor, "Can you help me separate our joint accounts and ensure my name is removed from any credit cards or loans that are still shared?"
4. Plan for Dividing Debt in the Divorce Settlement
What It Is: Understand how debt division will be handled in the divorce settlement, including who will be responsible for certain debts and how they’ll be paid off.
Why It’s Important: How debt is divided can significantly impact your financial future. A fair division of debt is crucial to avoid ongoing financial strain and ensure you’re not left with more than your fair share.
Experts Who Can Help: A divorce attorney and a Certified Divorce Financial Analyst (CDFA) can help you understand your rights and negotiate the division of debt during the divorce process.
How to Ask for Help: Reach out to your attorney or a CDFA and say, "Can you explain how debt is typically divided in a divorce and help me make sure the settlement is fair and manageable?"
4 Essential Personal Finance and Banking Considerations When Considering Divorce
1. Assess Your Joint Bank Accounts and Separate Accounts
What It Is: Review all joint bank accounts, credit cards, and financial accounts shared with your spouse. Consider how to separate these accounts before initiating the divorce process.
Why It’s Important: Keeping joint accounts open during divorce can lead to complications, especially if your spouse continues to withdraw money or rack up charges. Separating finances early helps you maintain control over your financial assets.
Experts Who Can Help: A financial advisor or a Certified Divorce Financial Analyst (CDFA) can help you create a strategy for separating your accounts.
How to Ask for Help: Contact a financial expert and say, "Can you help me separate our joint accounts and set up my own personal banking system before the divorce process starts?"
2. Understand the Impact of Divorce on Your Credit Score
What It Is: Divorce can impact your credit score, especially if there is shared debt or if you fail to separate your financial obligations properly.
Why It’s Important: It’s important to protect your credit score and prevent your spouse from making decisions that could affect your financial standing. Early planning can help you avoid negative financial consequences.
Experts Who Can Help: A credit counselor or financial advisor can offer advice on safeguarding your credit during and after divorce.
How to Ask for Help: Ask a credit counselor, "Can you help me understand how my credit may be affected by the divorce, and what steps I can take to protect my credit score?"
3. Create a Personal Financial Plan for Life After Divorce
What It Is: Develop a financial plan for your life post-divorce, including budgeting for new living arrangements, child support or alimony, and any adjustments to your lifestyle.
Why It’s Important: Understanding your financial needs post-divorce ensures you’re not left financially unprepared for the changes ahead. A solid financial plan can help you create stability and clarity for your future.
Experts Who Can Help: A financial planner or Certified Divorce Financial Analyst (CDFA) can help you create a comprehensive financial plan that accounts for post-divorce expenses.
How to Ask for Help: Approach a financial planner and say, "Can you help me create a budget and financial plan for my life after divorce? I want to make sure I’m financially stable and ready for the future."
4. Understand How Divorce Affects Retirement Accounts and Investments
What It Is: Review how your retirement savings, investment accounts, and other assets will be divided in the divorce. Understand the potential impact on your long-term financial security.
Why It’s Important: Divorce can significantly affect your retirement savings, and it’s essential to know how your investments and retirement accounts will be divided to plan for the future. Ensuring an equitable division of assets can protect your financial future.
Experts Who Can Help: A Certified Divorce Financial Analyst (CDFA) or financial advisor can guide you in understanding how your retirement assets will be divided.
How to Ask for Help: Contact a CDFA and ask, "Can you help me understand how my retirement savings and investments will be divided in the divorce, and how I can ensure I’m financially secure moving forward?"
By addressing these essential financial considerations early, you can take proactive steps to protect your financial health and make informed decisions during the divorce process. Reaching out to the right experts will ensure you’re on the right path to a stable financial future.