Divorce is stressful, and it is expensive. For those who are contemplating or already in the midst of a divorce, understanding the financial implications and being prepared are vital steps to getting through the process with your feet still beneath you.
We pulled together five key steps to help you prepare your finances for the divorce process.
How much does it cost to get a divorce?
According to LegalZoom, the cost of a divorce can vary widely based on things like how much you and your spouse agree on certain issues, whether you need an attorney, whether you have children, and more. The total cost can be anywhere from a few hundred dollars to billions, but a 2019 study found the average cost way $12,900 per couple.
$12,900! To put it into perspective, that’s half the down payment for a home, the cost of an okay used car, or a year of tuition at an in-state college!
What are the biggest divorce expenses?
The biggest expenses in a divorce are due to attorney fees, court costs, mediation fees, record deeds for your home. There can also be many other expenses, depending on the circumstances – anything from a forensic accountant to family therapy or relocation costs.
Steps to prepare financially for a divorce
Along with divorce costing a pretty penny, the process rarely follows a straight and narrow path. Whatever has brought you to this blog, whether you’re recently divorced or planning to be so, these tips will help you get organized.
Step 1: Gather your financial documents
While the process of divorce may seem long, you don’t want to wait until the last minute to gather all of your legal documents as this can cause unnecessary stress. Instead, gather them early and have them ready whenever you need them. Here are a few papers to gather:
– Assets: including checking accounts, savings, IRAs, 401k plans, investments,
– Property: including home, land, and vehicles
– Household expenses: including phone bills, Internet, water, insurance, electricity, cable, and streaming services
– All debts
– Bank statements, tax returns, and loan information
Step 2: Know what bills are due and when, and protect your credit
If you’ve been together for long, there’s a good chance you and your partner have co-signed on a loan or a lease. As long as your name is on those documents, your credit can suffer if your former spouse stops making payments.
Before the divorce gets too far, make sure you have a clear picture of your debts. Whose name is attached to what? How much do you owe? When are payments due, and who is able to make those payments? Gather all of the loan documents and statements you can get a hold of, and be sure to make copies.
If you’re able to, make your own life easier by paying off shared debts now, getting your own credit card, and getting online banking access to as many co-signed loans as you can. This will create a path forward to limit potential credit-crushing behavior, give you another way to build credit up.
Step 3: Create a budget:
If there was any time to be frugal…it’s now. By reviewing current household expenses (remember step 1?) you’ll step into your next life chapter more prepared for expenses that are subject to change, especially childcare, insurance, bills, and debt. You should consider your post-divorce income and plan for that as well (if it’s up in the air, do your best to estimate your future income). If you need help, try out the Dave Ramsey EveryDollar budget to help see where your finances are going, set savings goals, and set a spending limit.
Step 4: Start your own retirement plan
If you and your spouse had a shared retirement plan, or if you were relying on their retirement income to support you as well, now’s the time to start building your own. It may seem like you’re too late in the game to start another retirement fund, but you have to start sometime, and the best time is now.
Start small. You can consider requesting a Qualified Domestic Relations Order (QDRO) as part of your settlement; this document will help transfer your assets from a former spouse’s retirement plan and put it into your own without any tax consequences. Other than this, we advise getting a financial advisor to help sort out how you can keep saving for your retirement.
Step 5: Change your will and beneficiaries
If you don’t have a will, it’s a great idea to create one. If you do have a will already, it’s time to reflect and decide on what needs to be updated – particularly beneficiaries. It’s a good idea to consult with an attorney for this process. Act as soon as possible.
Other than a will, you’ll need to check on and update other documents with a beneficiary. This could include a 401k, insurance policies, and more. You should also get these updated quickly with the help of consulting a legal team.
Be financially ready for a divorce
We know divorce is anything but easy, especially with assets and possibly children involved. These tips are just the start of how to prepare yourself to overcome any financial challenges throughout your divorce.