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How to Financially Prepare For Divorce

Posted by : Premraj | Posted on : Monday, August 17, 2020

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Getting a divorce is one of the most stressful experiences you’ll go through, but it signifies a fresh start. Often, divorce is necessary to help you improve and progress your life.

While a brighter future is on the horizon, navigating your divorce is anything but easy. Arguably the greatest challenge during the dissolution of a marriage involves the distribution of finances.

When you’re married, finances are often co-mingled and combined, meaning that a division will need to be made during your divorce.

What makes this especially tricky is when you combine separate property with community property. This can leave funds you earned before getting married fair game for your spouse.

When you’re already in the process of a divorce, it’s too late to think about protective agreements like a pre or post-nuptial. Instead, you’ll need to prepare your finances so you can protect yourself during negotiations.

We’ll help you financially prepare for divorce with some useful tips below.

Analyze Assets and Debts

You should begin by analyzing your combined assets and debts.

Throughout your marriage, you and your partner have likely accumulated several different assets and debts. You want to have an understanding of all of these to know your full financial situation.

Something to keep in mind is that many couples tend to have one person in charge of finances. They typically pay the bills and keep tabs on bank accounts.

If you are the partner that does not oversee the finances, then analyzing assets and debts becomes even more important. You may have no idea how much or how little you have.

For assets, significant items include any vehicles, property, the values in your bank accounts, retirement funds, and unprotected inheritances.

Debts can include expenses like a mortgage, credit card debt, student loans, outstanding taxes, car payments, and medical treatments.

You want to find all of your assets and debts so that you can fairly distribute them during your divorce.

Track Your Cash Flow

Next, you’ll want to start tracking your cash flow. In other words, you want to know where your money is coming from and where it is going.

This is significant for a few reasons.

First, it will assist in determinations of alimony and child support payments. Missing or underreporting income will result in receiving less support than needed.

Second, you can identify if any money is missing. Perhaps there should be more in your account than there is. This could indicate that your spouse may be hiding it in another account or spending it on personal pursuits.

The final part of this is that it tells you what you’re contributing and how your life will change. This can help you prepare for future living arrangements and lifestyle changes.

When you have a good pulse on your combined cash flow, you’ll be financially prepared for the impact of your divorce.

Develop Personal Credit

Another crucial suggestion is to begin developing your personal credit, especially if you hadn’t done so before getting married.

Many married people, especially younger couples, do not have a strong history of individual credit. It’s much easier to build credit when you’re married because you’ll inevitably need to rent somewhere to live and bigger expenses requiring loans or credit aren’t uncommon.

The problem with this is that your married credit may not carry over. Typical sources of credit like credit cards and loans may not have your name on them, meaning that your spouse is the only one building credit.

This will leave you vulnerable after divorce and can make it difficult to find a place to live. To prevent this, you should open a personal credit card to begin using and paying off to develop your credit. While credit takes time to build, the sooner you start, the earlier it grows.

Considering this, take the time you have left to get your credit built up so you don’t face any issues after separating.

Eliminate Financial Connections

Lastly, you’ll want to eliminate any financial connections with your spouse.

By analyzing your assets and debts and tracking your cash flow, you should know all the financial details of your marriage. From this, you can extrapolate what your partner is included on and should be removed from.

A few common connections to sever include joint bank accounts, credit cards, and emergency contact information. You should also remove them as beneficiaries on retirement funds, insurance policies, and disinherit them from your will.

You want to make it legally and financially clear that you and your future ex-spouse are separate. This prevents them from unrightfully accessing your funds.

Figure out everything you and your spouse are legally tied together on and remove them or yourself. This reduces your liability and protects your future financial health.

Closing Thoughts

Financially preparing for divorce is crucial for protecting yourself and ensuring you get a fair deal. Many divorces end with one party receiving more than the other, which is avoidable if you fully understand your financial situation.

To be prepared, there are a few steps you must take. This includes analyzing your assets and debts, tracking your cash flow, developing your personal credit, and eliminating financial connections.

Divorces are often messy and it can be hard to find all pertinent information. Consider speaking with an experienced divorce attorney that can guide you through one of the hardest times of your life!

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