How to Prepare Your Finances for Life After Divorce
Getting a divorce is never fun, just ask those who are on their second or third. But one often overlooked element of divorce is how you prepare your finances for the next phase of your life. Given the stress of going through a divorce, this makes sense. However, keeping your accounts in order is important and this article will give you some tips on how to prepare your finances for life after divorce.
Collect Your Records
This is one of the first things you need to do in a divorce and while the information you collect will help to isolate accounts as part of the settlement – which is critical to finalizing the property division agreement between a divorced couple. However, there is another reason for having access to your financial records as it will allow you to take stock of your financial situation.
Regardless of whether you are intending to file for divorce or not, you should keep copies of all your financial records. These records should not only be the hard copies of your statements but you should also scan them to make sure you have a backup. In addition, you should store these records outside of your house as this will ensure you have access in case you are no longer allowed entry to your home.
Having evidence of your financials will be key to making a financial plan for your life after divorce. As such, you should not only walk through these records with your attorney and your financial planner. Talking to both will give you a good lay of the land and will be critical for figuring how you will approach things going forward.
Taking Stock
After you have collected your financial document you will want to go through them and match these statements with the assets that you hold. If this includes physical assets – e.g. watches, art, cars, homes, etc. – then you will want to make a physical inventory including noting the condition of the asset and its estimated value.
In terms of valuation, you will either need the original receipt (which can also help to prove ownership) or you get a third-party appraisal of the asset. Even if you specialize in valuations as part of your profession, you will want to check these assets with an outside party as their determination will be less prone to confirmation bias of the parties involved in a divorce.
Beyond, this you also want to make note of any assets which might be missing or damaged. While many divorces are amicable, there are instances where one spouse willfully damages the other’s property. As such, you need to have a good record of the nature of the damage and when it happened as the court might grant financial compensation for the damage.
Keep an Eye on Your Credit Report
From a financial perspective, divorces are extremely cumbersome. The reason is that many couples mix their finances to the point where it is difficult to determine who is responsible for what.
This extends to joint bank accounts, credit cards, home mortgages, and car loans among others. In fact, if you are a co-signer on a loan and your soon-to-be-ex fails to continue to service the loan, then your credit score could take a hit. As such, you want to make sure that you keep a close eye on your credit during, and after, the divorce proceedings. In addition, you want to inform all your creditors and the credit reporting agencies of the change in your marital status as soon as your divorce is final. This is especially true if you were the main earner in the couple as the odds are that several joint accounts were set up under your name.
Another way to get around this is to close all joint accounts as part of your separation agreement. This will allow you and your spouse the time needed to establish individual accounts and will minimize any credit risks going forward.
Set Up a Budget
Getting divorced also means that you probably don’t have as much disposable income as you had grown accustomed to. As such, you want to work with your financial planner to set up a budget and the tools to track your progress. Doing so will help to ensure you are properly tracking your income and expenses.
In addition, you want to look at the implications of your divorce agreement in terms of taxes, insurance, and even retirement planning. Any liabilities in these areas will eat into your available income and as such you need to get a plan very early on.
