Divorce is not just an emotional journey; it’s a financial one too. According to U.S. News and World Report, the average cost of divorce in the U.S. in 2020 was $15,000.
Preparing for the financial aspects of divorce is essential to ensure a smooth transition into a new chapter of your life.
Collect documents
Begin by collecting all relevant financial documents. This includes tax returns, bank statements, investment accounts, mortgage statements, credit card statements, retirement account statements and any other financial records. Having a complete financial snapshot will be invaluable during the divorce process.
Assess spending
Assess your current spending and create a budget that reflects your post-divorce financial reality. Consider your essential expenses, such as housing, utilities, groceries and transportation. Having a clear understanding of your financial needs will help you make informed decisions during the divorce proceedings.
Create an emergency fund
In the uncertain times of divorce, having an emergency fund is important. Aim to save enough to cover at least three to six months of living expenses. This fund can provide a safety net during and after the divorce.
Open accounts
Open individual bank accounts and credit cards in your name if you do not already have them. This separation of finances will help you establish your own credit and financial independence.
Watch your credit report
Keep a close eye on your credit report throughout the divorce process. Ensure that your spouse’s financial actions do not negatively affect your credit score. You can obtain free credit reports from the three major credit bureaus annually.
Address joint debts
Work with your spouse to address joint debts, such as mortgages and credit card balances. Decide how you will handle these debts post-divorce.
Plan for health coverage
Ensure that you have a plan for health insurance coverage after the divorce. You may be eligible for coverage under COBRA or, depending on your situation, you may need to explore other options.
Understand marital assets
Be sure you have a clear understanding of your marital assets and their values. This includes real estate, investments, retirement accounts and personal property. Knowing the value of these assets is essential for a fair division during the divorce.
Divorce is undoubtedly a challenging process, but careful financial preparation can help alleviate some of the stress.
