Financially Prepare for Divorce
Divorces are hard. Whether they are amicable or contentious, expected or unexpected, they can be confusing, disruptive, and exhausting. There are so many factors to consider, all of which impact the most important areas of life: your children, your home, your finances, and separating two, once joined, lives. While it may never be easy, this list can provide you with small, bite-sized goals to help manage your finances during and after a divorce. This is not an exhaustive list, but rather a starting point for those working through the early stages of the process.
Divorces are hard. Whether they are amicable or contentious, expected or unexpected, they can be confusing, disruptive, and exhausting. There are so many factors to consider, all of which impact the most important areas of life: your children, your home, your finances, and separating two, once joined, lives. While it may never be easy, this list can provide you with small, bite -sized goals to help manage your finances during and after a divorce. This is not an exhaustive list, but rather a starting point for those working through the early stages of the process.
Your Options for a Divorce Settlement
While it may be surprising to some, going through the courts in a traditional divorce is not the only option for finalizing your divorce agreement. There are options like mediation or collaborative divorce as well. Depending on the type of divorce you go through, the cost will vary. Here is a cost breakdown of three common options:
- Mediation: Expect to pay anywhere between $1,000-$5,000 once it is all said and done. These costs include things like your initial intake meeting with your mediator, the time and work that will go into creating your divorce agreement, and the court documents that finalize your divorce.
- Collaborative divorce: When both parties are in relative agreement about the terms of a divorce, they can choose a collaborative approach in which each party has legal representation and the four participants (the couple getting divorced and their lawyers) work together to come to an agreement. This still incurs legal fees and sometimes the hiring of experts but avoids the costs of going through the litigation process. This process generally costs about $10,000.
- Litigation: Mediation and collaboration are cheaper routes, but they don’t fit everyone's needs. You can expect to pay anywhere between $8,000-$15,000 per person for a traditional divorce settlement (and even more in some instances). Along with what’s listed in mediation, you’ll also need to pay for attorney’s fees, tax professionals, and real estate appraisers. If children are present, you may need a child custody evaluator as well.
How to Separate Your Finances
As you’re figuring out how to process and work through your divorce, it’s important to think of the future you, including how you will handle your finances as a single person/parent. Maybe you’ve been used to a two-income household, or one spouse paid the bills. You’ll want to determine what your new fixed and variable monthly expenses will be and if your single income will cover them. Depending on how you had set up your phone plan or car insurance with your former spouse, your monthly costs could increase. Some tasks/ items to consider:
- Cancel or close any joint banking accounts.
- Determine what expenses you will continue to share with your partner, for instance daycare, contributing to savings accounts for kids, doctor visits, or a mortgage payment.
- Figure out how much of your debts are joint and which were incurred individually (mortgage versus student loans, for example) and who will be responsible for each debt.
- Confirm the new prices for expenses that were once shared (car insurance, phone bills, etc.).
Little Costs That Occur
Again, the cost of the divorce will vary depending on whether you’re going with mediation or a lawyer. Still, there are bound to be other costs depending on your individual situation. Here are some expenses to plan for:
- Moving and new housing costs
- Paying off any cosigned loans
- State court fees
Handling a Hit to Your Credit
In some situations, one partner in the relationship handles all of the finances, which can mean the other person’s personal credit score can take a hit after a divorce, particularly if they have not had many accounts in their own name. The ways to build (or build back) your credit can vary from person to person. Depending on your situation, if you close joint credit cards, your credit score may suffer. However, your credit score will increase over time by taking the steps below:
- Get your full (and free) credit report from Annual Credit Report. Note that normally, you can only retrieve your report for free once a year, but since COVID took a toll on so many people’s finances, you can now check your credit report weekly, free of charge. Unlike the FICO, Vantage, or other scores your bank or lenders may provide, this credit report will give you a detailed overview based on all 3 bureaus.
- Open new, individual accounts and place small, recurring charges on the cards. Get in the habit of paying it off once or twice a month to not carry a balance.
- Remove your name from any accounts that list you as an authorized user, particularly if the primary account holder has a less than perfect credit.
- Work together with your ex or seek the help of a legal or financial advisor to decide who is responsible for paying back each debt. Be conscious of where the debt may have come from (whether it was joint or individual) and be sure each person can handle the bills they are being held responsible for.
If you’re feeling overwhelmed with this process, focus on a few things at a time.
- Write down a list of what your future, individual expenses will look like.
- Determine what joint expenses you will have to share with your former spouse.
- Find an accountability partner or friend that will help you stay on task and accountable
- Don’t be afraid to ask for help or move through these steps slowly.
Remember, it’s normal to feel overwhelmed by this process. The best way to work through it is to take a step back and look at the bigger picture and what is most important to you in the long
Financial Management Tools for Co-Parents
For those with children, keeping track of finances can be even more difficult. With its new Accountable Payments, co-parenting tool like TalkingParents allows you to keep your shared parenting expenses accounted for. You can securely send or receive money or send payment requests to your co-parent.
All activity is timestamped and available as a court-admissible certified document in the Payments Record. TalkingParents also includes many other helpful tools to maintain accountability, such as secure messaging, a shared calendar, Accountable Calling, and more.