Money Matters

No matter what your situation may be, divorce is likely to be expensive. At the very least, you will pay court fees and attorneys’ or mediators’ fees. Once you have separated, you will face increased costs for your housing and daily needs, as it is always more expensive to operate two households than to share the cost of one. After the divorce is final, you may be required to pay child support or spousal support. If your ex-spouse was the primary wage-earner, you may need to seek employment and establish credit in your own name. Below is some practical information about divorce and money matters, as well as suggestions for what you can do at each stage of your separation to take charge of your finances.

Divorce and Legal Fees
There are always legal costs associated with divorce. A do-it-yourself divorce, appropriate for couples who have not been married very long, do not have children, and do not have much property to divide, can cost as little as a few hundred dollars. But almost all other divorces will have substantial costs. The typical divorce costs between $2,000-$5,000, but if you and your ex cannot agree and are forced to hash out your differences in a lengthy court battle, the costs could escalate far beyond this amount. The best way to save money on your divorce is to use mediation to reach an agreement (See Mediation and Mediators.)

Initial Steps: What You Can Do Right Away to Protect your Financial Interests.
As soon as you know that you are getting a divorce, you should take steps to protect your financial interests.

Take Care of Practical Matters
If your living situation is not physically dangerous, emotionally explosive, or otherwise unbearable, you should take some time before you separate to sort out the practical details of your life. The divorce alone will be financially draining, so you do not want to encounter other, unexpected expenses once you have separated. At this time, you should make sure you have the necessary transportation, and if you have a car, that it is in good working order. Get a tune-up, new tires, and an oil change. If you are covered by your spouse’s insurance, you should get a medical and dental checkup and take care of any procedures that you have been putting off. Chances are that you can arrange to have your coverage continued as part of your divorce settlement, but in the meantime, it is wise to take care of any immediate needs. Finally, you may wish to rent a post-office box so that your mail remains private.

Take Inventory
As soon as you know that you are going to divorce, take inventory of everything you and your spouse own, including positive property (assets and possessions) and negative property (debts and financial obligations). Use the list below to keep track of what you and your spouse own or owe.

Positive Assets

  • savings or checking accounts
  • investment accounts
  • stocks
  • bonds
  • home or other real-estate property
  • automobiles
  • boats
  • insurance policies
  • pension plans or retirement accounts
  • bonuses earned by you or your spouse
  • single items or collections of items worth more than $500
  • contents of safety deposit boxes
  • any items under $500 that have a strong sentimental value

Negative Assets

  • home loans or home equity loans, mortgages, etc.
  • credit cards
  • store accounts
  • educational loans
  • anything else that you owe

Gather Important Documents
You should keep or make copies of all documents related to your finances. In addition to these financial documents, you should gather important personal papers. Use the checklists below to help you gather the necessary documents.

Important Financial Documents

  • tax returns and W-2 statements from the last 5 years
  • any correspondence regarding your divorce
  • pre-nuptial agreements
  • wills
  • pay stubs from both spouses for the past 6 months
  • statements from all bank accounts or investment accounts
  • records of bonds or CD’s (certificates of deposit)
  • credit card statements
  • receipts for items worth more than $500
  • copies of insurance policies (including life, homeowners, renter’s, or health)
  • information about employee benefits for you and your spouse
  • statements from pension plans or retirement funds
  • Social Security statements
  • real estate records, including deeds and statements
  • records of any inheritances or gifts
  • loan statements

Other Important Documents

  • passport
  • address book
  • driver’s license and registration
  • you social security card and your spouse’s social security number
  • your medical records and your children’s records
  • birth certificates for yourself and your children

Separate Your Finances
Once you have gathered up the necessary paperwork, you will need to take steps to separate your finances from that of your spouse. You should immediately open a bank account in your name only. Contact your bank and each of your creditors to get a balance, in writing, as of the date of your separation. If possible, close out your joint credit accounts. If your credit accounts remain open, write a letter to your creditors informing them that as of your separation date, you will no longer be responsible for any new charges incurred by your spouse. Both you and your spouse will be expected to justify any amounts you take from your joint bank accounts or any debts that you incur through your joint accounts.

Establish Credit in your Own Name
As you begin your new life as a single person, you will need to establish credit in your own name, if you have not done so in the past. First, you should request a copy of your credit report. If your spouse was the primary wage-earner or if you were a homemaker for much of your marriage, you may find it difficult to obtain credit. You can begin building a credit history by obtaining a credit card with a low limit and paying it off each month, or by taking out a small loan that you repay quickly and on time. At first, it may be necessary to ask a family member or friend to co-sign. Remember that this is a big responsibility for the co-signer, and it presents a obligation if you do not pay, so you should take your obligation to repay the debt very seriously. Finally, if you are not working, you should consider getting a job. Even part-time work will help convince creditors that you are a good risk, capable of paying back what you borrow.

When the time comes, and you want to get a new credit card in your own name, you should take care in choosing the best credit card plan that works for you. A good web site to start researching these issues is

Contact Your Creditors
If you are in debt and unable to keep up with your bills during the divorce, you should contact your creditors to avoid ruining your credit rating. Send a written letter informing them that you are aware of your debts and fully intend to repay them, but that you are in the middle of divorce proceedings and may be temporarily unable to pay. When your financial situation improves, you should call or write to your creditors to establish a payment plan. If you need help establishing a plan, you can contact your local Consumer Credit Counselors, a non-profit, free service, for help.

Consult a Lawyer
Your lawyer will help you sort through the details of your finances in order to negotiate a settlement. If you do not have a lawyer-for example, because you’re using mediation to resolve your divorce-you should still consult one at least once before you sign a final agreement.

Divorce Law and Marital Property
When issuing a settlement order, the court will distinguish between communal and individual property. Some property belongs solely to individuals and will continue to be the owned by the individuals after the divorce. Community property, on the other hand, is held in common and will be divided up as part of the divorce settlement. While in some states, marital property is divided equally (or 50/50) between the two spouses, other states divide this property using a percentage system that gives more property to the spouse who earned more during the marriage. You should research the divorce laws in your state so that you’ll know what to expect.

Community property includes all money earned during the period of the marriage as well as items that you purchased together. Property that you brought into the marriage (such as a house or car) will still belong to you after the divorce. However, if you brought property into the marriage and then you and your spouse both contributed to it (for example, by making payments together on a house or car,) then the property will be considered communal. In such cases, one person may be considered to have a greater interest (percentage-wise) in the property.

Bank Accounts
After your separation, you should obtain a statement of balance, in writing, on all of your accounts. The money in your joint accounts belongs to both of you and will need to be divided up as part of your settlement.

Individual accounts are considered individual property unless you can prove that some of the money was actually marital property.

Generally, you and your spouse will be responsible for any debts that you incurred together during the time of your marriage. You will each be individually responsible for debts that you brought into the marriage, and you will be individually responsible for your own educational loans. You will not be responsible for debts that your spouse incurs after the date of separation, except in a few situations. If these debts were incurred in order to pay daily living expenses or to cover the costs of caring for a child, you may have to share responsibility for them.

Inheritances and Personal Injury Awards
Gifts and inheritances are individual property belonging to the person who received them. The same is true for personal injury settlements, unless the ex-spouse can prove that he or she contributed significantly to paying the cost of the recovery and medical treatment.

If you or your children are covered by your spouse’s insurance benefits, you can ask that your divorce agreement specify a continuation of this insurance.

Social Security, Pensions, and Other Retirement Benefits
If you were married over 10 years, you will probably be entitled to a portion of your spouse’s retirement benefits. You will be entitled to a portion of these funds, but only the funds that accrued between the date of your marriage and the date of your separation. In the case of Social Security, you will still need to wait until you are of age to receive benefits.

Some Special Issues
Divorce and Taxation
You should get tax advice before your divorce becomes final. If your lawyer cannot advise you, ask him or her to recommend someone. It is a good idea to prepare a tax estimate so you’ll be aware of your taxation issues as you begin the settlement negotiations.

After divorcing, you will no longer have the benefit of filing a joint return. Also, only one parent can take a tax deduction for each child. While child support is not tax deductible nor is it taxable income for the recipient, spousal support is both taxable and deductible. If the divorce settlement includes a sale or transfer of ownership of the family home, there may be tax implications.

Hidden Assets
A hidden asset is income or property that one spouse does not disclose during the divorce negotiations. Some obvious examples of hidden assets include secret bank accounts or property that the other spouse doesn’t know about. Other examples include property that was transferred into another person’s name, bank accounts in the children’s names, and deferred compensation such as bonuses (in cases where one person specifically asks the employer to delay awarding the amount until after the divorce is final).

Hiding assets is illegal. If hidden assets are discovered after the fact, the divorce settlement will be considered null and void.

If you fear that your spouse may attempt to hide assets, or if you have no idea what assets you own (because your spouse has handled all the finances,) you should talk to your lawyer about your concerns so that you can look for hidden assets. Do not alert your spouse that you are investigating these assets.

Another kind of hidden asset is marital property that “disappears” from the home during the divorce. In order to avoid such disappearances, you should take inventory of your possessions at the outset and know what their value is. If you have no record of the items or don’t know what they’re worth, it will be difficult to ever recover them.

Spousal Support
Spousal support is only awarded in about 15% of divorce cases. Usually it is awarded in cases where one spouse was a homemaker and where the marriage lasted a long time (seven or ten years.) Today spousal support is often awarded on a temporary basis rather than permanently.

Changes to the Divorce Settlement
The divorce settlement is intended to be a final agreement. However, some things can be changed after the divorce if final, if you wish to take your case back to court. If your situation or your spouse’s financial situation changes significantly after the settlement, you may request that the judge consider a change to child support and spousal support. If the court finds that any portion of your settlement was reached under fraudulent terms (for example, one spouse was hiding assets or was untruthful,) the agreement will be subject to change.

Note: Some of the information for this article came from Divorce and Money: How to Make the Best Financial Decisions During Divorce By by Violet Woodhouse, Dale Fetherling, Victoria F. Collins and M. C. Blakeman.