Steps to Take to Prepare for Divorce Financially

It is said that a journey of a thousand miles begins with a single step, and nowhere is this more true than in a divorce. For business owners, real estate investors, and other wealthy couples, the path to divorce can seem like an arduous journey that will never end.

But working with an experienced family law attorney to organize your finances before filing for divorce can reduce stress, empower you to make informed decisions throughout the divorce process, and smooth your transition to post-divorce life.

Assess Your Financial Situation

The first step in preparing for divorce is to understand your current financial situation. This means gathering all relevant financial records, including:

• Bank statements
• Tax returns
• Mortgage and loan documents
• Investment account statements
• Business financials (if applicable)

Additionally, create a comprehensive inventory of your assets and liabilities. Include:

• Real estate
• Vehicles
• Retirement accounts
• Business interests
• Valuable personal property like jewelry, rare books, furniture, and art
• Credit card balances
• Outstanding loans

Once you have a clear sense of what your finances look like, you can begin to think about how to divide them between you and your soon-to-be-former spouse. In community property states, such as New Mexico, this means splitting the value of almost everything 50/50.

Establish a Budget for Life During and After Divorce

Divorce often brings significant changes to income and expenses. Developing a realistic budget is the first step toward navigating these shifts effectively.

Begin by tracking your current spending to gain insight into your financial habits. Then, project potential future costs, including:

• Housing
• Insurance
• Child-related expenses (if applicable)
• Retirement plans
• Legal and professional fees

You can gather a lot of this information from your bank statements, but you may also want to put together a spreadsheet.

Focusing on your future plans can help put the divorce process into perspective and enable your attorney to develop a more effective negotiation strategy.

Open Individual Financial Accounts

If you don’t already have separate financial accounts that your former partner does not have access to, now is the time to set them up. Setting up individual bank accounts, credit cards, and investment accounts is a step toward asserting your financial independence. It can also simplify the process of separating marital assets since it gives you a place to transfer assets that are awarded to you in the divorce.

Review Credit and Build Creditworthiness

In theory, splitting up with your partner should have no impact on your credit score because the credit bureaus claim that marital status is not part of your score. However, many people discover that their credit score dips following a divorce.

A score that falls too low can make it difficult to rent an apartment, get a loan, or even work in some industries. Make sure you know what your credit score is, check your credit report for accuracy, and take action to have any errors on your report corrected. Then take steps to improve your score by making prompt credit card and loan payments. Strong creditworthiness empowers you to make financial moves with confidence.

Consider Meeting with a Financial Advisor

Divorce has long-term financial implications, particularly when it comes to investments, retirement accounts, and taxes. Consulting a financial advisor, in addition to an attorney, can provide clarity and guidance. A financial advisor can:

• Analyze the impact of divorce on your portfolio
• Help you navigate the tax implications of asset division
• Develop a strategy for achieving your long-term financial goals

For business owners, this step is especially important to ensure your enterprise remains viable and protected throughout the divorce process.

Update Important Financial Documents

As you transition into this new chapter, it’s crucial to review and update key financial documents. Pay particular attention to:

• Beneficiaries on life insurance policies, retirement accounts, and trusts
• Powers of attorney and healthcare proxies
• Estate plans

Ensuring that these documents accurately reflect your current wishes and align with the terms negotiated in your divorce agreement can help protect your assets and support your future goals.

Moving Forward One Step at a Time

The journey to divorce can be overwhelming, but focusing on one step at a time makes the entire process more manageable. By assessing your financial situation, establishing independence, and seeking professional guidance, you can reduce any uncertainty you face and empower yourself to make sound decisions. One small step today can set the stage for a brighter financial future post-divorce.