One of the first questions I ask when a new divorce client walks through my door is “well, what do you think your spouse is going to do about the divorce?”
The point of this question is to gauge the likelihood that the spouse will contest any significant element of my client’s divorce plan.
While many divorces involve spouses who are able to agree on the terms of their separation, this isn’t always the case.
When assessing the options you have available in your case, it’s important to consider the likelihood that hostilities between you and your ex will escalate—and to identify any potential hot button issues.
For example, an amicable divorce (where the spouses are working together to ensure a quick and simple divorce process) likely won’t require extensive financial planning on your part.
On the other hand, a hotly contested divorce that focuses on finances or property will likely require a great deal of financial planning and forethought.
While most divorces will fall somewhere between these two extremes, the basic gist of the situation is that you must separate your finances from your spouse in a safe and equitable manner.
In this article, we’ll discuss a few basic ways you can protect your finances during a divorce.
However, please keep in mind that only an attorney and/or a financial expert who has reviewed your entire situation can make specific recommendations about your case.
Especially in divorces where property or other assets are contested, you must speak with an attorney before making any significant changes to your financial situation.
Below, we simply discuss a few common strategies that attorneys think about when we consult with clients who are filing for divorce.
Make a Plan
Regardless of whether your divorce is contested or if you’re splitting up amicably, it’s smart to make a plan for how you’ll manage your finances during and after your divorce.
Generally speaking, there are three broad steps that each divorcing spouse should try to complete in the months leading up to the divorce.
- Prepare for the Equitable Distribution Process — In Virginia, all joint marital property must be divided “equitably” (“fairly”) between the spouses. Because of this, the equitable distribution process can have a profound impact on your short- and long-term financial situations.
- Simplify Your Financial Situation — Divorce is a complex and often costly process that can complicate many areas of your life. For this reason, it’s usually wise to simplify your situation as much as possible during the divorce proceedings (while not inhibiting the equitable distribution process).
- Adjust Your Finances for Single Life — While this may sound obvious, it’s also important for you to consider the fact that you will soon be single again. In this way, it’s often wise for you to adjust your finances for your (soon to be) newly single life.
While there are certainly other tips for you to consider, the ones we outline below are the main ones that come to mind whenever I speak with a client.
As one final note before we begin, you should remember that divorce laws can vary by state, and, further, no two divorces are exactly alike.
For this reason, you should be especially wary of any generalized advice or financial tips you read online, as some may not align nicely with Virginia’s laws and divorce procedures.
Always consult with a local attorney and/or a financial advisor before you make any lasting decisions about your divorce.
Prepare for the Equitable Distribution Process
There are many ways for you to prepare for a divorce, and an almost unlimited number of online guides that discuss the emotional effects of doing so.
While our discussion here is more focused on the financial side of things, it’s still important for you to emotionally prepare for your divorce, as doing so can help you keep a cool head when making decisions about your future.
Talk to a friend, go to counseling, research the divorce process in greater detail.
No matter what you do, make sure that you’re prepared both mentally and emotionally before you get into the nitty gritty financial stuff.
At the bare minimum, you should start by familiarizing yourself with both the differences between marital and separate property in Virginia and Virginia’s equitable distribution process.
Additionally, if you and your spouse entered into a prenuptial agreement (“prenup”) before your marriage, you should take the time to review this document with an attorney to determine its implications for your case.
1) Don’t let your negative emotions lead your financial decisions.
We mentioned this topic above, but it’s important enough to warrant one more quick point.
Never base your financial decisions on negative emotions.
Doing so will only come back to bite you in the future, and may even end up costing you a great deal of money in the long run.
Trying to spite your spouse is a terrible move that will only anger the judge.
While positive emotions can lead to healthy decisions (such as if you want to fight for the ownership of a particularly sentimental piece of property), it’s still wise even in these cases to run your decision by an attorney before you fully commit to it.
For example, in our article on equitable distribution, we stated that “the best way to categorize [and divide] your property is to think about it in terms of ‘what really matters.'”
If we apply this logic here, it may be helpful for you to stop for a moment to think about what truly matters in your divorce case.
What’s your end game?
Some clients may want to get the divorce over with as quickly as possible. Others may want to fight tooth and nail to retain ownership of the family home or a collection of photo albums.
In these situations, your personal needs may override otherwise sound financial advice.
On the other hand, fighting with your spouse over a $50 toaster just to spite them could result in hundreds of dollars in legal bills, in addition to escalating an already contested situation.
For these reasons, it’s smart to find a balance between “sound financial advice” (that you receive from an attorney or financial advisor) and “what matters to you” (the ultimate goal of your divorce case).
By basing your decisions on a combination of practical advice and positive emotions, you can set yourself up for success from the very start of the divorce process.
2) Speak with an attorney and/or a financial advisor.
As you can probably tell from the previous section, the best advice for anyone considering divorce is to seek out someone with experience in handling divorces.
Normally, this means speaking with an attorney or someone at a legal aid office, but you could also speak with a financial planner if you have questions that are specific about how the divorce will affect your finances.
Divorce can be a complicated business, and even uncontested divorces can take several weeks to complete in full.
In cases where you believe that your spouse will contest the terms of your divorce (such as if they disagree with you on how you’ll divide your property), you must speak with an attorney about your case.
Or, as stated by the Virginia Bar:
“Although an attorney is technically not required in a divorce proceeding, each spouse should obtain separate legal counsel if there are issues in the divorce that may be contested, property rights need to be determined, or if the custody of children is in dispute.”Divorce in Virginia
While pro se (“do it yourself”) divorces are certainly an option, you should take note that they are sometimes long and complicated processes.
As an example, the Fairfax Circuit Court’s pro se packet (the best possible example of a pro se guide in Virginia) is 130 pages long, and even that doesn’t cover every possible scenario.
For this reason, it’s usually a good idea to at least consult with an attorney to ensure you’re following all relevant state and local laws.
3) Ask your attorney about the benefits of a property settlement agreement.
Property settlement agreements are useful documents that can help you settle the basic elements of your divorce in a quick and amicable manner.
For example, if you and your spouse agree on how you’ll divide your property, you can lay out your plans in a property settlement agreement.
Then, as a normal part of the uncontested divorce process, a judge will look over your agreement and, if it’s equitable, agree to its terms.
In the contexts of “how to protect your finances,” property settlement agreements are useful because they list all relevant assets and their values (as detailed in the next section).
Most importantly, you and your spouse can use a property settlement agreement to determine the ownership and division of these items without having to go to court.
For example, a settlement agreement could help you allocate certain debt payments to one spouse until the court finalizes your divorce.
Similarly, a settlement agreement could include binding arbitration clauses that can help you resolve later disputes both quickly and efficiently.
However, you should keep in mind that a property settlement agreement is an agreement, not a court order:
- It only works if both parties agree to the terms and sign the document.
- Virginia does not recognize legal separation through contract, so this agreement simply lays the foundation for your later divorce proceeding.
- This agreement is only valid if a judge finds it to be equitable, and if it doesn’t infringe on any other orders (such as a child custody order).
Because of this, you should think of a property settlement agreement as a useful tool that, with the assistance of an attorney, can make your entire divorce much easier.
4) Itemize and value your property for an equitable distribution.
We recently published a series of articles on this topic, which we strongly encourage you read before you start the divorce process:
- Marital and Separate Property in Virginia: Who Owns What?
- How to Value Your Property During a Virginia Divorce
- Equitable Distribution: How to Divide Your Property during a Virginia Divorce
However, to summarize, during the divorce process you and your spouse must divide your property, assets, and debts in an equitable manner.
For this reason, it’s generally a smart idea for you to make an itemized list of all of your individual and jointly owned property before you begin the process in earnest.
If you hire an attorney they’ll probably ask you to do this anyway, so getting it out of the way early is a good way to simplify and speed up your divorce.
Practically speaking, you should make a a list or spreadsheet that details every asset and piece of property that may be relevant to your divorce.
For example, your list should include things such as:
- Real estate, such as the family home or a hunting cabin
- Vehicles, including other high-value items like ATVs and motorcycles
- Any and all bank accounts, whether individual or jointly owned with your spouse
- Any and all investment accounts
- All expensive property, such as furniture or electronics
- All property that holds sentimental value, such as photo albums, collections, hobby items, etc…
Make sure to accurately value (as outlined in the article above) everything on this list as well, especially if you believe that your spouse will contest your ownership of the item or asset in question.
Additionally, you should include this list of items in a divorce planning binder that includes copies (or originals) of all of the following:
- Any and all tax returns from the past 5-7 years
- All available pay stubs for both you and your spouse
- Banking and credit records, including a list of all transactions, credit card statements, mortgage information, etc…
- Up to date resumés for both you and your spouse
- Up to date wills for both you and your spouse
- Real estate information, including deeds, titles, etc…
- Information about any investments held jointly or individually by you and/or your spouse, including stocks, IRAs, pension accounts, 401K plans, etc…
In contested divorces both attorneys will request this information as part of the discovery process.
In uncontested divorces, your attorney will use this information to ensure your property settlement agreement and other divorce documents are equitable, and follow all relevant Virginia laws and guidelines.
Basically, regardless of the circumstances of your divorce case, one of the first things your attorney will ask you to do is to make a list of your stuff.
By properly itemizing and valuing your property from the get-go you can save a great deal of money in the long run, and can set yourself up for safe and financially responsible equitable distribution process.
5) Learn about the hidden tax implications of your divorce.
If you’re interested in how your divorce will affect your taxes, the most relevant document is IRS Publication 504 (2018), Divorced or Separated Individuals.
However, this document is long, technical, and very dry to read.
For this reason, it’s usually recommended that you consult with a tax professional in the year following your divorce so that you can file your subsequent taxes correctly.
For the purposes of this article, however, all you really need to know is that (1) your tax obligations will (generally) change only after you finalize your divorce, and (2) the wording and terms of your divorce will also have an impact on your taxes.
For example, depending on the wording of your divorce and how you transfer your assets, one spouse may have to pay taxes on realized gains from retirement or other investment accounts.
Similarly, the transfer of some tax-advantaged retirement accounts, such as the Roth IRA, may result in penalties if you don’t follow the proper procedures (in most cases, this means corroborating the transfer in your final divorce decree and other documents).
As another common example, spousal support (“alimony”) payments generally count as taxable income.
Because of this, the spouse paying alimony may be able to claim a credit on their taxes for the payments, while the receiving spouse may have to pay taxes on this new source of income.
As you might expect, there are far more situations than what we can cover in an article like this.
For this reason, it’s highly recommended that you speak with a professional about your specific obligations both before and after your divorce becomes finalized.
Simplify Your Financial Situation
The last thing you want during a divorce is a bank or creditor calling you about a missed payment or similar issue.
For this reason, it’s usually smart for spouses considering divorce to stop for a moment to reconsider the effect the divorce will have on their way of life.
For example, you should remember that divorce can be quite an expensive process due to various filing and attorneys fees.
In fact, even uncontested divorces can cost upwards of several hundred dollars.
Additionally, the whole point of a divorce is to separate yourself from your spouse.
As a result, you will also soon lose many of the conveniences brought on by marriage (cheaper housing, additional income and savings for emergencies, a support net if you lose your job, etc.).
For these reasons, as long as you’re able, it’s usually smart to save up an emergency fund that covers around 2-4 months of your living expenses before you choose to file for divorce.
Further, you should take steps to avoid necessary problems or mishaps that might complicate your divorce.
We’ll cover three common solutions below, but, basically, the best way to simplify your financial situation is to carefully separate your finances from your spouse’s (preferably after talking with a professional who has experience in the subject).
6) Separate your credit accounts (carefully).
A common tip for divorcing spouses is to immediately pay down and close any outstanding joint credit accounts.
However, this tip isn’t as simple as it might seem, and may even cause serious problems for your divorce in the long-run.
For instance, recklessly closing all of your credit accounts could have a profoundly negative impact on your credit score, which could hurt your chances of finding new housing or opening new credit accounts after your divorce.
Similarly, closing out accounts in an inequitable way could have a profoundly negative effect on your divorce proceedings.
For example, if the breadwinner spouse closes all of the credit cards that the stay-at-home spouse uses to pay for daily necessities, the stay-at-home spouse could claim that the breadwinner spouse cut them off in an inequitable way.
Often, the smarter solution is to negotiate with your spouse so that you can find some common ground to stand on while your divorce finishes (to reiterate a point from earlier, a property settlement agreement is one common way to do this).
Put another way, you should take steps to carefully separate your credit accounts, usually after you finish speaking with an attorney (or an accountant) about the situation.
For example, in an amicable divorce you could divide up your joint debt in a fair way, pay down the accounts, and then close them in a way that minimizes the impact on your individual credit scores and lives.
On the other hand, in a contested divorce you should only act on the advice of your attorney, as closing or altering accounts on your own could negatively impact your case.
For example, you could (at your attorney’s recommendation) freeze any joint credit accounts to avoid unnecessary joint spending that could complicate your divorce.
You could also request that the judge order your spouse to continue paying joint debt (such as the mortgage) while the divorce is ongoing.
As we noted above, the most important thing you can do in this situation is to carefully consider the outcome closing your accounts might have on your life, and then act on the advice of an experienced professional.
Never alter your financial situation during a contested divorce without first consulting with your attorney.
7) Separate your other finances and assets.
In a similarly careful fashion, you should also take steps to further separate your other finances and assets from your spouse’s.
For example, it’s generally good advice for separating spouses to open new personal baking accounts, preferably at a different bank from the one you previously shared with your spouse.
Similarly, depending on the circumstances, you may want to withdraw exactly half of the funds in any joint checking or savings accounts.
You can then deposit these funds into your new accounts at the other bank.
Importantly, if you and your spouse have any retirement accounts, you must discuss their distribution with your attorney.
For many divorcing couples, pension and retirement accounts are actually the largest marital asset that is susceptible to equitable distribution.
Without getting into the specific rules outlined in the Virginia Code, these accounts are rather complicated to divide, and require additional consideration during the divorce process.
For this reason, you should always discuss them with an attorney before you begin to make withdrawals or transfers.
8) Don’t take on new debt, and consider freezing your credit.
Finally, it’s often wise to avoid taking on new sources of debt during the divorce process.
While it may be smart to use a low limit or secured credit card for your everyday expenses (provided you pay it off in full at the end of every month), it’s best to avoid most other forms of debt during your divorce.
Remember, divorce is already a relative expensive process, and taking on large amounts of debt during this process will (usually) only further complicate your situation.
In a similar vein, it may be smart to request a copy of your credit report so you can better gauge your financial health.
You can request a free copy of your credit report at annualcreditreport.com.
However, please keep in mind that pulling a copy of your spouse’s credit report is identity theft, a very serious federal crime.
If you’d like to see your spouse’s credit report you should ask them for a copy.
Or, if you feel that it could have an impact on your case, you could request a copy during the discovery phase of your divorce.
As one final note, if you’re involved in an incredibly contested divorce, it may be wise to temporarily freeze your credit as a way to protect yourself from shady practices by your spouse.
While totally optional, this can help protect you in the event that your spouse tries to open new credit lines under your name.
Plus, it’s relatively quick and easy to revert once you need your credit again.
As with many of the topics in this article, “better be safe than sorry” is the general guiding principle behind this tip.
Adjust Your Finances for Single Life
Often, it can be hard to adjust your financial situation to prepare for life as a single person without inhibiting the equitable distribution process.
However, with careful preparation, and the help of an attorney or financial advisor, it’s possible to move comfortably back into single life after your divorce.
9) Make a budget, and understand your new debt obligations.
We mentioned earlier that it’s important for you to make an itemized list of all of your property and assets.
However, it’s critically important that you make a list of any bills and required payments in the early stages of your divorce.
During divorce consultations I often like to ask the question “who’s paying for things now, and who will pay for things in the future?”
By this, I mean “who’s paying which bills now and, more importantly, who will pay these bills both during and after the divorce?”
For example, if you are in the middle of a contested divorce involving the family home, who is paying the mortgage?
If the lower-earning spouse wants to keep the house, can they continue to pay the mortgage?
In almost all cases, it’s smart for divorcing spouses to make budgets for how they’ll manage their individual finances both during and after the divorce.
Such a budget could serve several purposes:
- It can set realistic expectations for what your quality of life will be like in the weeks and months following the divorce.
- In an amicable divorce, it could help you plan out your financial obligations with your spouse to ensure an equitable division of yoru property and assets.
- It can help ensure that all bills are paid on time, and that no bills fall through the cracks during your divorce.
- A budget can help you ensure your quality of life by letting you make cuts to wants while retaining a similar level of needs.
By taking your everyday expenses and now-split debt obligations into account, you can set yourself up for success in the weeks and months following your separation.
10) Change your beneficiary designations and update your emergency contacts.
As a rather quick and simple tip that often gets overlooked, you should take a moment to update your beneficiary designations and emergency contacts on all important accounts.
For example, most life insurance policies and individual retirement accounts (IRAs) require a beneficiary in the event that something unexpected happens to you.
While divorcing spouses sometimes choose to keep each other as their beneficiaries, if only for a short time, it’s usually wise to at least consider updating the information on your accounts.
11) Bolster your emergency fund to offset unexpected expenses.
We mentioned earlier that it’s usually smart to save up around 2-4 months of living expenses before you choose to file for divorce.
However, it’s also important for you to consider the fact that, by divorcing your spouse, you are losing out on an important financial safety net.
Further, the months following your separation will usually be filled with problems and hardships, so you’re even more at risk of running into financial difficulties.
For this reason, it’s usually smart to save around 3-6 months of living expenses in a high-interest savings account as a way to offset unexpected future expenses.
While this may seem unnecessary at first, starting over will be expensive, and unexpected problems can and do occur.
For those who may have difficulty in building an emergency fund, it may be wise to find other safety nets to rely on, such as friends or family in your local area.
Divorce is a harrowing and emotional process, not least of all because of the financial obligations involved.
For this reason, many divorcing spouses choose to seek out ways to protect their finances during their divorce proceedings, usually by turning to online articles such as this one.
However, only an attorney or financial advisor who has reviewed the facts of your case can provide an accurate assessment of what you should or should not do in your particular situation.
While articles like this are useful for bringing attention to certain strategies or topics that you should consider, you should always consult with an experienced professional before taking any lasting actions in your case.