How to protect yourself financially before you get divorced

Divorces are often difficult emotionally and even sometimes legally. For many, even the possibility of divorce can turn their world upside down.

This information can help reduce stress during an already emotional time. Whether a divorce is a possibility or is being actively discussed, there are several ways to protect yourself financially. 

These tips can help you ultimately live the life you want to live, realign your finances with your values, and focus on what’s most important to you, even during an emotional time.

1. Assemble your team of professionals

If divorce is likely, it’s essential to be prepared and understand your options. Speaking with a divorce lawyer to learn your rights is a good idea. An attorney can educate you about any applicable state laws that affect how your assets can be divided, key “do’s and don’ts,” and other critical steps to take.

A financial planner can be extremely helpful in understanding the short- and long-term implications of splitting assets. For example, a spouse with child custody may want to live in the home so the children don’t have to move. But years later, they might end up receiving the house in lieu of a portion of their spouse’s retirement assets. It could also mean that the mortgage and other housing expenses leave the spouse in an unexpected financial situation. So it’s important to have a professional outline the potential trade-offs of any financial decision.

Assembling your team of professionals, such as a lawyer, a financial professional, an accountant, and potentially a mental health professional, as soon as possible is critical. 

Taking these measures is not an act of disloyalty or “giving up on the marriage,” no matter what others may lead you to believe. Whether your current relationship is amicable or not, you want to have a clear idea of how divorce may impact you and what options you have. Additionally, some actions professionals may recommend are much easier to do while you’re both still together, such as compiling a list of everything you own and owe and how those things will be divided.

You also want to know how your state’s laws may affect the division of your property because some states will mandate the distribution of assets. A local attorney may advise you to sign a postnuptial agreement to better protect your possessions during a divorce or separation. 

One important thing to note: if you and your spouse currently share the same lawyer, accountant, or financial planner, you should retain your own professionals. You want to avoid any conflicts of interest and ensure your advisors focus on your best interests.

2. Keep quiet-ish

Your goal is not to get people to agree that your spouse, soon-to-be ex-spouse, is a bad person or “win” in the court of public opinion among friends or associates. Instead, your goal is to protect yourself and stay focused on what you must do to maintain a fulfilling life post-divorce. If possible, keeping honest and open communication can go a long way to making divorce more manageable and much less emotional.

If your relationship is no longer cordial, don’t start bad-mouthing your spouse to other people or on social media. Trashing someone in public may only make things more difficult later. Instead, try to keep things as calm as possible. Talk to a therapist. Cry on a friend’s shoulder. 

If you have children, don’t publicly criticize the other parent on social media or anywhere else. Not only could it hurt your case if custody is involved, but publicly criticizing the mother or father of your children can send a traumatic message to children. It could also affect your case if, for example, you later ask a court to revisit alimony, child support, or any other financial issues. Take the high road even if you feel your ex doesn’t deserve it.

3. Research, research, research

If you and your spouse will soon divide all assets, you need to know what and where they are. Make copies of account information and statements for everything you own for your records, whether separately or jointly. Pay particular attention to anything acquired since you’ve married, such as a home, vehicle(s), or valuables. Get a sense of your home’s value on Zillow or Realtor.com, or talk to a real estate agent for a more nuanced (and possibly more accurate) estimate to best understand what it’s worth in the current market.

If possible, go through household files and make copies of everything you can, including:

• Automobile titles
• Bank statements
• Check registers
• Credit card statements
• Employee benefits handbooks
• Financial statements
• Investment statements
• Life insurance policies
• Mortgage documents
• Retirement account statements
• Social Security statements
• Tax returns
• Wills

Don’t start opening secret accounts or retitling any assets to “hide” your money without consulting an attorney first. If your divorce is or becomes contentious, courts do not look favorably on attempts to hide assets.

You should also conduct a home inventory of everything you and your spouse own, especially items of value. Those items will be part of the divorce settlement. Make notes about the details of valuable items acquired before and during the marriage.

4. Make a list of household expenses

Know the weekly, monthly, and annual household expenses you and your spouse incur. This information may be useful when a judge or mediator considers topics like alimony and child support. It will also help you better understand your financial situation once you’re divorced.

Although your financial situation will change after divorce, understanding what expenses you will and won’t have without your spouse is paramount. It will help your future financial life without your spouse’s/ex-spouse’s income and may support possible alimony or child support.

5. Get a handle on debt

Allocation of marital debt among divorcing spouses is one of the most difficult to negotiate. While taking stock of debt, determine whether any of it was incurred by one spouse or the other before the date of marriage. This is considered “non-marital debt,” belonging to the spouse who incurred it.

Don’t go on a spending spree or take on more debt unless absolutely necessary. Revenge spending may feel good in the moment, but making large purchases or running up credit card debt can significantly limit your options in the long run.

6. Start saving money

You should always have access to savings of your own. If your spouse moves out and stops paying bills, you will need to pay them until temporary support orders are entered. If you are the one who is going to file for divorce, you’ll need money for a retainer to hire a lawyer. Start saving now and plan to initiate divorce proceedings when you have built up a reliable reserve.

However, consult an attorney before making any significant changes to your life, such as moving out, transferring a substantial amount of money, or closing jointly-held accounts.

7. Don’t sign financial documents

As we mentioned, now is not the time to enter into new financial obligations or change the ownership of your assets without consulting an attorney. Talk with your divorce lawyer if your spouse suggests signing any financial or legal documents for any reason, no matter how reasonable the request may sound. You want to avoid unintentionally relinquishing control of your jointly-held assets.

8. Update your estate planning (and other) documents

An often overlooked consideration is updating estate planning documents, life insurance policies, or retirement accounts. Chances are your spouse is named as a beneficiary, which means that if something happens to you before your divorce is finalized, your spouse will inherit your assets. If you want to ensure that your spouse does not inherit first, you should seek assistance to update your estate plan accordingly. You do not need to wait until the finalization of the divorce to make changes to your estate plan, but you will need to update them again once granted the divorce.

Many people don’t realize that certain agreements supersede what’s written in your will. For example, if your workplace 401(k) or life insurance policy still lists your former spouse as a beneficiary, they will receive those assets if you pass away, no matter what your will states. Almost every lawyer has stories of clients who forgot to update their documents, and the former spouse, not the current one, received the life insurance payout. You also need to be aware that if you live in one of nine community property states, your spouse may have the right to 50% of all assets earned during the course of your marriage. 

9. Make a game plan for taxes

Divorce doesn’t erase tax obligations. Splitting assets where, for example, one spouse keeps the primary residence and the other receives certain retirement assets can have significant tax implications. What may seem like a fair, equitable division at the time of the decision can play out very differently after taxes are paid.

Another significant tax consideration is the money the divorcing spouse pays the other later. This can be child support (monthly funds paid to the spouse who has custody to help support the children) or alimony (monthly funds paid by one spouse to help support the other). Alimony and child support used to be tax-deductible for the payer, but that deduction ended in 2019. The funds are also no longer considered taxable income for the recipient as of 2019.

For the recipient, tax-free alimony may seem like a great deal. Still, experts believe the amount of alimony awarded by courts will decrease because the payer no longer gets the tax deduction and must pay with after-tax dollars.

Talk to an accountant or other financial expert about taxes before reaching any final agreement.

10. Focus on what’s important

If you have children, remember that your children aren’t getting divorced, you are. It’s very important to always keep their safety and security at the top of your priority list. If you plan on asking for joint or sole custody, you should make every effort to stay active in your children’s lives as much as possible. Do not talk badly about your spouse in front of your children, and try to avoid arguing with your spouse in front of them if possible.

It’s easy to get caught up in the emotion of divorce when making financial decisions. Try to find some calm, quiet moments, and focus on what’s important to you. Is it most important to you to stay in the house, possibly with your children? Are you willing to give up your primary residence if you can own and live in the beach cottage? Are there certain assets that hold sentimental value that you both want to retain?

Many couples argue over assets out of spite or anger. They may not even be interested in them but choose to battle over assets because the other spouse values them. At the end of the day, winning that battle may temporarily feel good, but it’s important to be honest about what you want and what you don’t in the first place.

Being gracious and giving up something that’s far more important to your spouse may not feel like “winning,” but if you get what you need in the end, you’ll be in a good place to pursue the path that makes life meaningful to you.

Divorces can be amicable or painful, relatively calm or dramatic. Whatever happens, try not to let your emotions drive your decisions. In the long run, you’ll be much better off.