How to Prepare Your Finances for Divorce

Quick Answer

Divorce is hard enough on your emotional well-being, but it’s still important to prepare your finances for the legal process and life after divorce. Here are seven steps to help you get ready for divorce:

  1. Gather your financial statements
  2. Document your assets
  3. Find a good lawyer
  4. Track your income and expenses
  5. Separate your finances
  6. Create a budget
  7. Consult a certified divorce financial analyst
Woman at home looking worried getting bills in the mail.

Divorce is a heartbreaking reality for over 600,000 couples in the United States each year. Splitting up your marriage is not only emotionally troublesome but financially disruptive as well. The cost of a divorce can range from under $500 for an amicable do-it-yourself divorce to over $20,000, including attorney fees, for a divorce that goes to trial to resolve contested issues.

However, the costs of divorce go beyond the divorce filing fee and lawyer expenses. Untangling the finances of two people can take considerable time and money. Divorce proceedings can be time-consuming and costly, so prepare your finances with these tips.

1. Gather Your Financial Statements

As you prepare for the legal process of divorce, gather current and past financial statements to see a complete picture of your shared and individual accounts. You can save time and money by having important information handy when your lawyer asks for it. Standard documents you may need to provide include:

  • Assets: Checking, savings and investment account statements for the past year
  • Retirement plan accounts: Current statements for IRAs, 401k plans or pensions
  • Property: List of assets, including real estate, vehicles, boats and trailers, that accumulated before and during your marriage
  • Debts: Statements and balances for all debts, including mortgages, auto loans, personal loans, credit cards and lines of credit
  • Taxes: Past three years of income tax returns

2. Document Your Assets

One of the primary functions of a legal divorce is determining how assets are distributed between both parties. As such, it's wise to create an inventory of joint and individually owned assets, including receipts and videos or pictures for each item if possible.

Make a note if assets are solely owned by you or shared with your spouse and if you are willing to part with specific items. Assign a value to each asset, including your home, car or business. You may need to hire a professional appraiser to determine the accurate value of an asset.

3. Find a Good Lawyer

While it's possible to reach an amicable divorce without a lawyer, a competent attorney can be helpful for most couples. Even if you don't plan on contesting multiple issues in court, a good lawyer can advise you of your rights and responsibilities and break down the legal jargon during the process, which can help you make more informed decisions regarding your future.

Seek references from your peers for reputable attorneys with experience practicing family law. Interview multiple attorneys before making a decision. Ideally, you'll find an attorney who will act as your advocate to protect you and help you achieve your goals.

4. Track Your Income and Expenses

The legal process of your divorce will determine how to split your joint assets and debts and whether to award spousal or child support. To help you present your case, your attorney will want to know how much you earn and the amount you spend on bills and other household expenses.

You may already be tracking your expenses as part of your budget, but if not, review your bank statements and other documents for information to create a tracking document. Your report should include your monthly and annual income and household bills, including food, transportation, child care, entertainment, home repairs, vacations and other expenses. Don't forget to look ahead and account for potential expenses in the future, like a child's extracurricular activities and school tuition.

5. Separate Your Finances

Set up your own checking and savings accounts and get your paychecks automatically deposited there. Try to work toward an agreement with your spouse to close your joint accounts. If an agreement isn't possible, consult your attorney about the best way to proceed within your state's laws.

While you're at it, consider opening your own retirement account, especially if you're planning on receiving money from your spouse's retirement account as part of your divorce. You can transfer the funds directly to your retirement account and avoid paying taxes on the money now.

If you're staying in your home after your divorce, get the utilities, streaming services and other household bills in your name. And if you're planning on leaving the home you share with your spouse in a settlement, work with them to remove your name as a mortgage co-borrower and safeguard your credit.

6. Create a Budget

Your income and expenses are likely to change, so it makes sense to look ahead to prepare for life after divorce. Get a sense of control over your finances by creating a budget and analyzing your personal cash flow. Add your post-divorce income streams and subtract your expenses. Ideally, there's enough income to meet all your expenses, but if not, look for ways to reduce your discretionary spending.

As you budget, remember to account for expenses you used to share with your spouse. Nothing is worse than suddenly realizing you don't have the funds to pay a substantial bill when you're on your own. Review your bank and credit card statements to identify large expenses like auto loans and health insurance, and add them to your budget so you can adjust it accordingly.

7. Consult a Certified Divorce Financial Analyst

Divorce can be an all-consuming process and can feel overwhelming for many. If keeping track of your finances and planning for the future feels overwhelming, consider hiring a certified divorce financial analyst (CDFA). These professionals have credentials and experience in the financial aspects of divorce that are usually beyond the scope of a traditional financial advisor, such as:

  • Understanding the tax ramifications of your assets
  • Advising on asset distribution options
  • Estimating the future value of retirement plans and assets
  • Creating a workable budget for managing money after divorce
  • Uncovering any hidden assets your spouse may own

Protect Your Credit in a Divorce

If you share credit accounts with your spouse, you likely also share the responsibility for that debt. Safeguard your credit by working with your spouse to close or remove your name from joint accounts. Remember, you can be held responsible for your partner's actions if they add more debt or miss payments. Your creditors report activity on the account to the credit bureaus in both your names, affecting your credit score and your partner's.

Since on-time credit payments account for 35% of your FICO® Score —the credit score used by 90% of top lenders—requesting a free copy of your credit report from Experian may make sense. Check your report for errors and consider free credit monitoring to ensure your spouse's actions don't negatively affect your credit.