Say Goodbye to Your Ex, Not Financial Security

10 Money Moves to Make During Your Divorce

By Mark Yatros 

It’s no great revelation that going through a divorce is an emotionally challenging experience. But it’s also important to recognize that it can be a tough financial time.

Throughout your divorce journey, you’ll make numerous crucial financial decisions, from where to live to how to split your marital assets. And each decision comes with consequences for your heart and your wallet. Understanding the extent of financial strain during this period is vital, as it can affect your life for years.

When you’re ending your marriage, it may feel as if you’re all alone. But you’ve got a lot of company: Between 40 and 50% of first marriages in the United States end in divorce. The divorce rate for second and third marriages is even higher.

Consider these additional facts about divorce and money:  

• 22% of divorcing couples say “money issues” played a significant role in their split (Institute for Divorce Financial Analysts).

• Divorce costs an average of $15,000 per person (Forbes).

• Most people’s standard of living drops after divorce, with women over 50 facing a 45% drop and men experiencing a 21% drop (Forbes).

All of this means it’s crucial to understand the impact of divorce on your finances so it doesn’t negatively affect you for years. Following are 10 steps you can take to tame financial uncertainty during your divorce:

1. Gather Your Financial Information

As you begin the divorce process, getting all your financial information together is critical. Begin by compiling every piece of financial documentation you can access. This includes bank statements, credit card statements, tax returns from the past three years, pay stubs, and other documentation of assets and debts.

This comprehensive financial snapshot is the foundation of the decisions you'll make. Plus, you’ll most likely need all this information for legal proceedings.

2. Create a New Budget

If you don’t know this already, here’s a notice: Your finances are about to change drastically. To prepare for these changes, draft a new budget based on your anticipated post-divorce income and expenses. Your budget should reflect the reality of your new, single-income household. Don't forget to include legal costs associated with your divorce, which average around $15,000 per person.

Remember that while you may have to tighten your belt for a while, it's essential to maintain financial stability during this transition.

3. Close Your Joint Accounts

Joint accounts can be a source of financial vulnerability during a divorce. It’s wise to close or freeze these accounts to prevent your soon-to-be ex from racking up debt for which you could still be held responsible. Also, closing joint accounts can help protect your credit score.

As you close or freeze your joint accounts, open new individual accounts in your name so you can begin building your own financial identity.

4. Consider Hiring a Certified Divorce Financial Analyst (CDFA)

Certified Divorce Financial Analysts specialize in divorce finances and can offer invaluable assistance. They see the divorce process through a financial lens much more so than an attorney would, so they work with your attorney, not in place of them. CDFAs are equipped to handle the complexities of asset division, tax implications, and post-divorce financial planning. Most importantly, CDFAs can help ensure you and your spouse reach a fair and equitable financial settlement.

My colleague, Carissa Hagen, and I are both CDFAs and would be happy to speak with you about your divorce. You can schedule a free, no-strings-attached consultation anytime.

5. Assess and Manage Your Debt

Fully understanding and actively managing your debt during divorce is vital. You must consider all joint debts and decide who will be responsible for which debts. Often, spouses negotiate debts, with one person taking on a specific debt or two in exchange for assets. However, it’s wise to be cautious about what debts you take on and consider the potential financial strain they might bring.

Debt can impact your credit score and future borrowing ability, so consider consulting with a financial advisor or your Certified Divorce Financial Analyst to manage this transition best.

6. Understand Your Assets and Their Value

You must understand your assets and their entire value before you begin negotiating to split them. This includes the family home, other real estate, vehicles, valuable collectibles, business interests, and investments. Each asset has a current and a potential future value, and understanding this is crucial for fair division.

Assets like retirement accounts and stocks can be complex due to tax implications and varying market values. So, it’s wise to protect yourself by working with a financial advisor or a CDFA.

7. Revisit Your Financial Goals

Your financial goals may look different once you’re divorced. Take time to reevaluate what you want your financial future to look like. You may want to buy a new home, change the amount you’re saving for retirement, or adjust the amount of money you put aside for your children’s education. You may also want to revisit your investment strategies or adjust your savings plan to align with the changes in your life.

8. Update Your Estate Plan

After your divorce, updating your will and other estate documents is essential. By doing so, you’ll ensure that your assets and healthcare decisions are in line with your current wishes. If you neglect this step, you could allow your ex-spouse to inherit your assets still or make medical decisions on your behalf. Chances are, you’ll want to avoid this.

9. Negotiate Wisely

Dividing assets is not just about what’s worth more now but what will benefit you in the long run. Some assets come with tax burdens or maintenance costs that could become financial drains. So, when negotiating, it’s best to work with a financial advisor or a CDFA who can help you consider the future value of assets, not just their current worth. The impact of these decisions can be felt for years, so it's essential to think ahead.

10. Plan for Taxes

Taxes can often be an afterthought in divorce, but they have a significant financial impact, so it’s vital to understand how splitting assets and alimony will affect your taxes. It’s a good idea to talk with a financial advisor, tax specialist, or CDFA for guidance on how your divorce will impact your tax situation. Being forewarned will help you avoid a financial shock later.

Also, remember to adjust your tax withholding to reflect your new marital status to avoid unexpected tax bills.

Implementing these 10 steps can help you make informed decisions that protect your financial well-being during and after your divorce. Remember, it’s important to seek financial professionals' guidance and make decisions based on logic and long-term planning rather than emotions.

My team and I are happy to meet you for a free consultation. Please get in touch with us or call (269) 218-2100. 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.