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  • Writer's pictureSteve Coker, CFP

The Financial Side of Divorce

There are really no winners in a divorce and going through the process can be one of the most emotionally charged and stressful times of life. While your finances may be the furthest thing from your mind, dealing with (and dividing) the money that spouses share is important. If you find yourself in a situation where you are contemplating or starting a divorce here are some initial steps that you can take to protect your interests and make sure the process goes as smoothly as possible.

First, let’s set up some ground rules. While it may seem cathartic to empty the bank accounts and run up the credit cards, don’t do anything rash. Before you file for divorce (and until the assets are officially split) you and your spouse both have a legal responsibility not to do anything that would harm the other with regard to joint interests, and property must be managed for the benefit of both parties. Be wary of trying to hide assets since this may be looked upon unfavorably by the court (in addition to creating an environment of distrust and conflict). With that said, what can you do?

  1. Get organized and keep good records to show that the money was spent to support your mutual interests.

  2. You also may want to split joint cash accounts and move cash into accounts held individually. This step is best done through mutual agreement. Remember that in most situations half of the money technically belongs to each spouse, so if one spouse takes more than his or her share that money may need to be repaid later or worked back into the settlement.

  3. Consider whether to close joint credit cards. There are pros and cons here because the credit cards may provide a needed source of credit. However, they are also very dangerous. Your soon-to-be ex can max out your credit cards and neither spouse needs permission, a signature or even a notice if the account is in both names. You will need to be extremely careful in order to avoid being responsible for these debts. Make sure to write each credit card company to request that the account be permanently closed. It is better for both of you to start to establish credit as individuals.

  4. Payoff debt where you can. When you and your spouse sit down to divvy up assets and debts, the debts present a challenge because they can’t easily be split between two spouses. Creditors are usually reluctant to simply transfer all of the responsibility to one spouse, and can often come after either spouse for the full amount of the debt if it isn’t paid – even after the divorce. An easy way to resolve this is to pay off any debt that you can even if this means selling some of the assets. Of course, this is often not possible, so an alternative is to refinance the debt using credit obtained as individuals. Be wary of keeping your name on debt that your spouse agrees to pay. Prior to signing a final settlement agreement you should obtain a copy of your credit report so that you can verify all credit accounts in your name.

  5. Start making an inventory of all assets, debts, and income so that you can have a methodical and rational conversation about how the assets are to be split. Remember that a contested divorce is incredibly expensive so it is in your mutual best interest to find agreement. Consider what is most important to you and try to be flexible while negotiating for the things that matter most to you.

  6. Consider hiring an attorney. More and more people are going through divorce without hiring an attorney, but an attorney or mediator can be incredibly helpful since they are detached from the emotions that you and your spouse bring to the table. Involving an attorney does not necessarily mean that there is conflict. Rather, an attorney can help reduce stress by helping you navigate the complex rules as quickly and easily as possible.

Divorce is difficult and no one really wants to be dealing with these financial questions, but they are real and it is best to address them right away. Taking these initial steps will help you get started on the right path.

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