How to financially prepare for divorce

Quick insights

• A post-divorce budget may need to account for changes to your income, household expenses and savings goals.
• Gathering digital and hard copies of your financial, property and investment records and statements can help to provide a clear picture of your current financial situation. 
• Consider avoiding larger purchases or long-term financial commitments while going through a divorce.

Divorce can be a time of upheaval and uncertainty. Regardless of the reason divorce has entered the picture, your financial situation is likely to change. As you begin to plan for life post-divorce, your finances will play a significant part in navigating what things look like on the other side. 

In this article, we’ll discuss some of the ways you can financially prepare for divorce, common mistakes to avoid and considerations when creating your post-divorce budget.

Preparing for divorce

Divorce can take months—sometimes years—to finalize. Being financially prepared for divorce could provide guidance and clarity as you navigate the more challenging parts of separating your assets. 

Divorce laws vary by state, so understanding how your state treats the division of assets during divorce can be an important part of preparing for divorce. How courts handle the division of any shared property, business or custody of children will depend, in part, on state laws. 

As you prepare for divorce, one thing you may want to do early on is hire or consult with legal and financial professionals who can provide guidance and advice about local laws and financial considerations as you prepare for divorce.

Assessing your financial situation before a divorce

Gathering relevant information and documentation regarding any shared assets early on in the divorce could potentially streamline the legal process. Types of documents and examples include:

• Assets: Checking accounts, savings and cash
• Debt: Credit cards, student loans, mortgages, car loans, medical debt, lines of credit and personal loans
• Property: Homes, land, vehicles, household items, personal items and more
• Household expenses: Utilities, property taxes, internet and phone bills, to name a few
• Retirement accounts: IRAs, 401k plans and pensions for you and your spouse
• Legal documents: Your will, power of attorney, insurance policies (home, life and auto) and your past three years’ tax returns 

The documents you collect should include what you hold or own individually as well as what you have jointly with your spouse. Having both hard copies and digital files saved somewhere safe and easily accessible helps when you’re wielding requests for information from your attorney.

Protecting your finances

Divorce is not always amicable, so creating a bank account separate from your spouse is one way to protect your finances and credit score. Changing passwords or login details for your individual accounts may help prevent access to your account information as well. 

In the shifting responsibility that is inevitable during divorce, having a list of common household bills and their due dates may be helpful. The list might note the amounts and due dates of any monthly payments you make or are associated with your household expenses. 

Regardless of who typically pays the bills, ensuring you have that information may help to prevent missed payments as you navigate your new normal. This exercise may also help you determine which accounts, expenses and services you can eliminate or open separately during or after your divorce.

It also can be helpful to understand how divorce affects your credit score.

Common financial mistakes to avoid during a divorce

Divorce proceedings vary by couple. However, there are some related financial mistakes that tend to be common:

• Not having a budget: Divorce can have a major effect on your finances. Having a budget can help you find your footing and provide a plan for your shifting financial outlook. 
• Making big financial commitments: Entering divorce can cause heightened emotions. Steering clear of big purchases or long-term financial commitments during this time can help avoid future regret.
• Forgetting about taxes: How you file your taxes will likely change while you’re going through divorce and once your divorce is finalized. Knowing the tax implications of divorce may help you be better prepared when tax time comes. 
• Out-of-date legal documents: If your spouse is listed as a beneficiary or primary contact on your will, trust, power of attorney or end-of-life care wishes, consider updating these documents to reflect your current preferences. 

Creating a budget for life after divorce

Even if you have a budget now, it will likely need adjustments. Budgets should be flexible to meet your changing financial situation, and divorce is a time when your budget may be particularly in flux. 

You may need a budget while you’re going through divorce and then make significant changes to it once your divorce is final. Common changes include:

• Income: Will your income change—either due to a job change, spousal support or child support payments?
• Expenses: What expenses should be added or eliminated because of your divorce?
• Goals: Do you need to alter your savings accounts or savings goals? Do you need to reevaluate how much you’re contributing to a 401k?

Having a budget that is flexible enough to accommodate career changes, new living arrangements and childcare options can provide a smoother transition into your new life. 

In summary

Preparing for divorce generally calls for careful review and planning of your finances. Before you begin divorce proceedings, if possible, consider gathering documents and information regarding your finances, property, liabilities and taxes. Having a clear picture of your finances could help you better plan and prepare for life after divorce. 

A post-divorce budget may look different than the one you have now or the one you use while going through divorce. Your budget should be flexible enough to account for related life changes.