Divorce Preparation: Are Your Finances Covered?
Almost half of adults in the United States enter marriages that end in divorce, according to the American Psychological Association. While no one wants to think about the end of a once-committed relationship, the unfortunate reality is that you may have to undertake divorce preparation.
Knowing that you're not alone if you and your spouse choose to divorce doesn't necessarily make the process any easier. You'll likely deal with a wide range of emotions, and it may be difficult to address the practical aspects of ending your marriage.
But life does go on, and you need to protect your future – including your financial future. Make sure you understand what to expect when splitting up assets and dealing with debt and credit in your divorce preparation.
Know Your State Property Laws
It's essential to know whether or not you're in a community property state. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin all abide by community property laws.
This means that any assets you shared from the beginning of your marriage are considered jointly held. That includes money, property and even debt. Everything gets split 50-50, no matter who owned the asset or property within the marriage.
Property and assets owned before the marriage should go to the spouse who owned them. In a community property state, if you want to claim money or another asset in the divorce, you must trace ownership back to you before you got married.
Most other states view property acquired during the marriage as belonging to the spouse who bought, earned or accrued it. But since there are no defined rules as to who gets what, divorce preparation can get contentious if there's a disagreement over ownership.
For these reasons, document everything if you feel that divorce is on the horizon.
Protect Yourself and Your Future Finances
If you're preparing for divorce and feel worried about the financial implications of becoming single, you may want to hire a divorce attorney right away. Divorce attorneys can help protect you from a legal standpoint and advise you on what to do or avoid. As every divorce has its nuances, having one-on-one legal advice can be indispensable.
Making financial decisions between the time you've demonstrated your intention to separate and when the divorce papers are signed can have major implications for your divorce settlement, especially if your spouse takes you to court.
That being said, one action you may want to consider is getting a line of credit in your own name if you don't have one currently. You can also look into opening your own checking account, but do not move money from a bank account you hold jointly with your spouse to an account that's just in your name.
Manage the Cost of the Divorce Itself
Divorce can get expensive – not just through a loss of assets but also through the fees associated with the legal aspects of distributing property and arguing for ownership.
Although it might be difficult, work with your spouse as much as possible through the proceedings to keep costs down. If you can come to an agreement on the distribution of the property you shared during the marriage, you may be able to file for an uncontested divorce and skip hiring legal professionals altogether.