Financial Steps in Divorce

Deciding to divorce is already an emotionally challenging process. What can you expect to happen in the first few months?

The first step is that your case has to be filed with the court, and this is usually done by your mediator or lawyer. When you’ve mutually decided to divorce, this is quite perfunctory, with one of you (the defendant) being served with divorce papers by the other (the plaintiff). At the time that the case is filed, restrictions automatically go into place so that neither spouse can do anything with property that will be divided in the divorce. This includes transferring marital assets, making changes to physical property, incurring unreasonable debts, or changing the specifics of insurance policies or retirement plans. Your financial life is on hold as the negotiations begin.

The process of divorce should be considered a business transaction, where marital assets are divided in an equitable manner. In the best of cases, emotions can be controlled and the business transaction is negotiated efficiently. When children are involved, the process is often more complicated and emotionally charged, despite both parties wanting what is best for the children.

As the process is underway, both parties must continue their day-to- day lives, complete with the associated expenses. If the couple has decided to live separately, new expenses come into play. Ideally, the two divorcing individuals can agree who will pay what expenses during this transition, but it can be a challenging time with lots of uncertainty. If an understanding cannot be reached by the separating spouses, the court is petitioned to issue Temporary Orders that outline financial arrangements:

  • Child support
  • Spousal support
  • Custody schedule or child visitation

Financial Affidavit

Very early in the divorce process, each party is required to fill out a financial affidavit. This document is used by the court to determine support, either for temporary orders or in finalizing the divorce. The financial affidavit is a picture in time of each spouse’s current income, expenses, assets and liabilities. Completing this document can be one of the more challenging elements in the early divorce process. Not only do you have to detail your expenses, but this private information must be shared with a mediator or lawyer and the court. It is important to be honest, thorough and a bit thick skinned.

For many of us, becoming familiar with how we spend our money is a new undertaking. It is important to take the time to feel confident that you are sharing an accurate picture of your spending. At the same time, it is easy to get stuck “in the weeds,” detailing every individual line item and penny spent but not understanding the overall picture.

In gathering details to complete the financial affidavit, you are well on the way to developing an understanding of the expenses and income you’ll need to meet your financial goals. This will become very important as you and your lawyer or mediator develop a strategy for obtaining a fair financial outcome.

Bank Accounts and Bills

It is critical to identify and begin to untangle every day expenses, such as utilities and credit cards. Determine whose name is on each bill and who will be paying it going forward. Keep in mind that if a household bill in your name goes unpaid, it will damage your credit score.

Close joint checking accounts as soon as possible to avoid confusion. A bounced check written by your soon-to-be ex will damage both your credit scores.

Marital Home

During separation, often one spouse remains in the marital home while the other finds housing elsewhere. It is important that both spouses agree upon how the costs associated with this marital asset will be handled. Mortgage payments, property taxes, insurance policies, maintenance and utilities must all be considered. Keeping a detailed accounting of what is paid by whom, and settling the difference when the divorce is finalized can be a strategy. This does assume that each party has the cash flow required to pay the costs in the meantime.

Children and Pets

Depending on the custody arrangement, there may or may not be additional costs involving the children and pets. One solution is to open a joint bank account for these extraordinary children or pet expenses, with each spouse depositing an agreed-upon amount. Any expenses, such as camps, computers, doctors’ appointments or new clothes would come out of the account, and when funds get low, the parents each deposit another equal amount.

Whether from a financial or emotional point of view, divorce is not easy. Newly separated, the decisions that must be made can feel daunting alone. Friends and family can certainly be instrumental as sounding boards and for support. Your divorce lawyer, who will know more about you than you imagined anyone would, is also there to support you. On the financial side, a financial planner or Certified Divorce Financial Analyst can work with you to compile the information you will need to reach a fair financial outcome. Then, once the settlement has been agreed upon, the planning can begin in earnest to set goals, make a budget and invest towards your financial independence.

To learn more about financial factors when divorcing, read my blog “Financial Clarity Helps When Considering Divorce.”

Jennifer Nicasio, CFP®
Jennifer joined HTG in 2005. As an advisor, she helps clients make thoughtful and informed decisions on all aspects of their finances. Jennifer is a CERTIFIED FINANCIAL PLANNER™ practitioner and Certified Divorce Financial Analyst®. As a CDFA™ professional, she helps clients understand the short and long-term implications of decisions they are making during the divorce process. Jennifer has a BA from Middlebury College.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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