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What to Know Before Getting a Divorce

07/05/2022
Hands removing wedding ring.

Many people suffer financially after divorce. Maintaining separate households is simply more expensive than sharing everything. But if you focus on what you need to know before filing for a divorce, you may soften the financial blow. Asking key questions will help you create a list of financial things to do before getting a divorce.

1. How much will the divorce cost?

The cost of carrying out a divorce is one of many things to consider, and the cost varies depending on the conflict. For instance, without even going to trial, a divorce settled with the help of lawyers cost $10,600 on average according to one national survey.*

2. What will my monthly expenses be when I live alone?

Most Americans don’t track their household spending, according to the Certified Financial Planner Board of Standards. If you haven’t done so before, create a list of all your household’s monthly expenditures. Note what you pay each month for housing, groceries, transportation, kids’ needs, clothing and other categories. Then, use this information to make a post-divorce budget.

Most couples find that each of their single expenses will exceed their half of the marital expenses. For instance, if you are replacing one home with two, your mortgage or rent costs will likely increase. If you have young children, daycare expenses might skyrocket without the ability to share childcare duties. And a late-in-life divorce has financial considerations that often require a new approach to money.

Download our budget worksheet to outline income and expenses and set guidelines. Knowing where your money goes provides a good foundation for your future.

3. Will I be able to stay in my home?

Many of us are attached to our family home, especially if our children live there. You may want the kids to continue at their current schools. However, attorneys warn that fixating on keeping the house may distract you from the rest of the negotiations.**

If you give up all or most of the other marital assets in order to keep the house, you might end up “house rich and cash poor.” In this situation, will you be able to afford needed maintenance?

4. How might divorce affect my credit rating?

Although divorce settlements can assign marital debts to each individual, a divorce decree can’t necessarily keep those debts off your credit report. This means that even after the divorce, if your ex fails to make payments, it may hurt your credit score. To avoid such surprises, convert shared accounts to individual accounts when possible, and check credit reports often.

What if your accounts were all in your spouse’s name and you never built up your own credit history? You might find yourself unable to get your own credit card, rent an apartment or get a mortgage. To prevent this, establish a credit account in your own name before divorce, if possible—and make payments on time.

5. Will divorce affect how I get health care?

Unfortunately, if your insurance coverage is through your spouse’s employer, you will likely lose it when you divorce. While you can extend your coverage using COBRA, this can be expensive.

If your own employer offers a health care plan, you may be able to enroll simply by checking with your benefits department. If not, you can buy a plan under the Affordable Care Act. You can also check to see if your post-divorce income qualifies you for Medicaid coverage.

6. Do you know all the assets your spouse owns?

If you suspect your spouse has accounts or valuable items you don’t know about, you may need to do some digging. Some partners might notice a red flag: Did your spouse suddenly sell an expensive car to a friend, cheap? Others may just be out of the loop when it comes to joint investments and accounts.

If you’re in this situation, you may want to scour your past few years' tax returns, any public filings, loan applications and the histories of your joint accounts.

7. What will solo retirement look like?

You and your spouse may have had a date in mind when you would be financially ready to step back from full-time work. You now need to calculate a whole new scenario for your future single retirement.

When dividing marital assets, don’t ignore retirement accounts. This is especially important if one spouse—statistically more likely to be the wife—has saved less for retirement in their own name. Your property division should include any and all individual retirement accounts (IRAs), 401(k) plans and other such accounts. You will need a specific type of court order, a qualified domestic relations order (QDRO), to carry out the division.

Also keep in mind that you may be entitled to part of your spouse’s future retirement benefits, including Social Security and pensions.

8. Can I use QDRO money to pay for a new home or other expenses from the divorce?

If you need money straightaway, you may choose to use all or a portion of the funds distributed from a QDRO—but it's important to understand all of the implications of each distribution option and how it may reduce your retirement savings.

In general, money from a qualified plan distributed directly to an ex-spouse is not subject to the 10% early withdrawal penalty. However, income tax rates would still apply. Money you don’t need immediately could be rolled into an IRA from the distribution to take advantage of tax-deferral benefits.

9. How are alimony and child support payments taxed?

Today, alimony and child support payments are not tax deductible by the person making the payments. However, the payments are not reported as income by the person receiving the payments.

It’s always a good idea to consult tax, financial and legal professionals who understand your situation and can thoroughly explain your options.

10. Are there things I can do now to improve my financial situation post-divorce?

If your split is amicable, consider making financial moves together to prevent some of the post-divorce financial suffering.

Things to think about doing before getting a divorce:

  • Set up separate bank accounts.

  • Pay off joint debt or close joint credit accounts and replace them with separate ones.

  • Give a spouse time to establish a credit rating in their own name.

  • Consider filing for bankruptcy before filing for divorce if you are close to bankruptcy.

  • Sell the family home, which might allow for tax advantages and simplify the divorce settlement.

  • Allow time for career training if one of you has been out of the workforce.

Don’t forget to check in with your employers and change your withholding allowances. If you have been claiming a personal allowance for your spouse and you divorce or legally separate, you must give your employer a new Form W-4, Employee’s Withholding Certificate, within 10 days after the divorce or separation. For more information on withholding and when you must furnish a new Form W-4, see Publication 505, Tax Withholding and Estimated Tax.

Remember to Update Beneficiaries

Don’t forget to update your beneficiaries on retirement accounts, life insurance policies, assets with transfer on death designations and other important documents, including those that may be associated with an estate plan.

Taking Care of More Than Finances

These are only some of the financial questions to ask as you think about your new, separate life. The answers are important for your future, but financial concerns are just one aspect of the divorce process that can weigh on your emotional well-being. Be sure to also take care of yourself during this time.

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Gejelten, E.A. How Much Will My Divorce Cost? Nolo, 2019.

Source: Lynch & Owens PC. “Can I Keep the Marital Home in My Divorce?” Oct. 23, 2019.

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