Was finance a hot topic for you and your ex? If so, you're not alone. In a recent survey, we found 59% of people reported finances to play a major role in their divorce decision. See more in our video:
While divorce is sometimes a part of life, you might feel unprepared when first considering a formal separation. But you're not alone. Experian spoke with some people who are experts in this area - because they've been there as well - to compile a list of tips for you to know. A few key things can help you smooth the financial waters while your relationship comes to an end:
1. Separate your finances from your soon-to-be-ex spouse ASAP.
This is a time where you'll probably need more credit than ever, to rent or buy a new home, get a new car, set up utilities or finance divorce attorneys. Identity theft is incredibly common during a breakup, as are plummeting credit scores in the confusion and conflict over who is responsible for which accounts. And don't kid yourself — even the nicest, most honest people can go nuts during divorce, and it's common for divorcing partners to rack up debt on accounts with both parties' names attached. Protect yourself.
- Emma Johnson, Wealthy Single Mommy
2. Create a balance sheet for yourself by putting together all the financial assets and liabilities you and your soon-to-be-ex spouse have and totaling the values.
This will give you an overall idea of your combined net worth and help you understand how to begin dividing the finances. I recommend people do this before they think about handling specific assets since the overall picture can lend you an idea of what things might be mandatory. For example, discovering that the level of credit card debt was so high that selling the marital home was the only viable option. Not all parties always know these circumstances and are able to agree on a course of action until this exercise has been completed.
- Mandy Walker, Since My Divorce
3. Unlike child support, spousal support (‘alimony') is typically considered to be taxable income for the person receiving it and tax-deductible for the payer.
This is so important because you need to know the actual out-of-pocket cost is to you if you'll be paying, or the net amount that you'll receive if you're the recipient. For example, John says he can't afford to pay Mary $40,000 per year in spousal support. But John hasn't factored in the tax deduction to know how much less than $40,000 it's really going to cost him; with that knowledge, he might find that he can easily afford it. And before asking for $40,000 in annual spousal support, Mary needs to know how much of that money she'll get to keep after taxes. Ask your financial professional to factor in the tax information for both spouses before fixing an amount for spousal support.
- Diana Shepherd, Divorce Magazine
4. Never under-earn to maximize the child support or alimony you can claim from your ex (or for that matter, to minimize how much you have to pay your spouse).
You'll want to hit the ground running to reignite your earning potential in the short term, not lean heavily on your ex when unnecessary. This only holds you back in countless personal, professional, and financial ways. Moreover, it can add significantly to conflict and legal bills for years to come.
- Emma Johnson, Wealthy Single Mommy
5. Don't enable a shopaholic spouse.
If you're the primary or sole wage-earner and your spouse is spendthrift, it's important to inform the bank that a divorce is pending and that all joint accounts will now require dual signatures for withdrawals or transfers above a certain dollar amount. If you have joint credit cards with high monthly limits, consider decreasing the amount. After taking that step, let your spouse know that he or she needs to apply for a card in his or her own name immediately since you'll be canceling the joint card within a set period of time.
- Diana Shepherd, Divorce Magazine
6. Figure out your financial situation.
To make a clear state of the union for your finances, you'll need to request records from all the banks, brokerages, investment and retirement contacts that you work with. Make sure you include assets like stock options, deferred bonuses, vacation pay, benefits from your previous employers, tax refunds from joint returns, property tax reimbursement, the contents of your safety deposit boxes, prepaid insurance premiums, frequent flier or credit card reward points, season tickets, and timeshares. These can all play a role in your overall asset picture you'll need to capture for a truly accurate baseline.
- Diana Shepherd, Divorce Magazine
7. Get your credit report.
It's the best way to know what credit accounts are open in your name and whether they're currently held by yourself alone or jointly. The report can also help you complete the financial disclosures you'll need to fill out - and make sure they're as accurate as possible. Your report can also help guide you and your soon-to-be-ex through a discussion about how any accounts with debit balances will be handled, and, moving forward, whether you'll close the account or keep it open.
- Mandy Walker, Since My Divorce
Remember that you can get free access to your Experian credit report if you're ready to look over the accounts on your credit report. Consider getting back in touch with your credit information to prep for financial discussions with your soon-to-be-ex so you can avoid surprises.
According to our recent survey on divorce, more than half (59 percent) said their biggest financial regret was not being more independent in the marriage — and highest among those (77 percent) whose spouse was the primary breadwinner. As you choose the next steps in your financial future, know that it's not uncommon for those emerging from divorce to trim back their lifestyle — at least temporarily. But it's often wise to accept a few limitations today to ensure you'll have the resources to rebuild the life you envision for yourself in the years to come.