Navigating money and divorce is far from easy. The last thing you need when you are going through a breakup is to deal with the consequences of financial mistakes. Several of my friends are going through divorces and I can tell you that money is one of the biggest stressors in these situations. Knowing how to handle your finances and planning ahead is crucial. So, before you sign those papers, you should be aware of these six money tips.
1. Get a Full Picture of Your Finances
Before making any financial decisions, you need to know exactly what you and your spouse own. Gather all bank statements, credit card bills, tax returns, and investment records. Many people overlook debts, but those must be divided too. If one spouse handled the finances, the other might be in the dark about hidden assets or liabilities.
2. Open Individual Bank Accounts Immediately
My husband and I combined our finances several years ago, as many couples do. When a divorce comes up, it’s time to separate things. Open your own individual checking and savings accounts. It’s time to start managing your own money! You can also track your income and expenses and start coming up with your new budget for your single life. It’s also a good idea to avoid making any large withdrawals from joint accounts without legal guidance. Once you have your own accounts, you can get a better idea of what things will look like for your financial future.
3. Understand How Assets and Debts Will Be Divided
Dividing property and debt isn’t as simple as splitting everything down the middle. State laws vary—some follow community property rules (everything is split 50/50), while others use equitable distribution (dividing assets based on fairness). Marital assets include homes, cars, savings, and retirement accounts, while debts like mortgages and credit cards also get divided. It’s important to negotiate wisely—keeping a house you can’t afford may not be the best choice.
4. Be Prepared for Changes in Your Credit Score
Divorce can impact your credit in unexpected ways. If you shared loans or credit cards, missed payments could hurt both your scores. Close joint accounts or remove yourself from them to avoid being responsible for an ex-spouse’s spending. If possible, refinance shared debts into individual names to prevent future financial entanglements.
5. Consider the Tax Implications of Divorce Settlements
Many people overlook the tax impact of divorce, but it can make a huge difference in your financial future. Alimony, property division, and even child support can come with unexpected tax consequences. Selling assets like a house can trigger capital gains taxes, while dividing retirement accounts improperly can lead to penalties. Filing status also changes—deciding whether to file jointly or separately in the divorce year can affect your tax bill.
6. Update Your Estate Plan and Beneficiaries
Divorce doesn’t just affect your present finances—it also changes your future plans. Review and update your will, life insurance policies, retirement accounts, and power of attorney documents. Many people forget to remove their ex-spouse as a beneficiary, which can cause legal headaches later. If you have children, make sure guardianship and financial plans are clearly outlined.
Protect Your Finances Before It’s Too Late
Divorce is an extremely emotional thing without having to deal with the added stressors that money mistakes can bring. Handling your finances wisely and keeping these tips in mind can help save you from major financial issues during the divorce proceedings. Take the time to consider your approach and ensure that you aren’t going to be left holding the bag, so to speak.
Have you gone through a divorce? What tips would you give someone going through the same thing?
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