Preparing Financially for a Divorce

The financial consequences of divorce can be long-lasting and far-reaching, affecting everything from your day-to-day budget to your long-term retirement plans. The process can involve dividing assets (and debts!), adjusting to a single income, navigating support payments, and potentially relocating or downsizing. Without careful planning, it is easy to make decisions that may harm your financial well-being for years to come. By taking proactive financial steps before and during divorce, you can minimize disruptions and set the foundation for a more secure future. Here’s a practical guide on what to consider when preparing your finances for divorce. 

Start Collecting Financial Documents

Courts and attorneys will require thorough documentation of your financial situation. Start gathering these relevant financial documents as early as possible:

• Tax Returns (last 3-5 years) for proof of income and deductions
• Recent Pay Stubs to show current earnings
• Bank Statements for all checking and savings accounts to track cash flow and activity
• Retirement Account Statements, such as 401K, IRA, and pensions, to establish the value of long-term earnings
• Investment Account Records, such as stocks, bonds, mutual funds, and other assets subject to division
• Mortgage and Loan Agreements
• Insurance Policies, including life, health, home, auto, etc., to understand coverage and how it may change post-divorce

You should also pull a credit report. By law, you can get one for free. Credit reports provide a detailed snapshot of your current credit standing, showing your credit score, payment history, and outstanding debts. They reveal any joint accounts or liabilities you share with your spouse, such as credit cards, loans, or mortgages. This information is crucial during divorce because it helps identify which debts need to be divided and who is responsible for them moving forward. Monitoring your credit report can also alert you to any unauthorized charges or changes that could affect your financial future.

Detail All of Your Assets and Debts

One of the first steps in preparing financially for a divorce is gaining a clear understanding of exactly what you and your spouse own and what you owe. This allows you to make informed decisions when proceeding with your court case. This means taking inventory of all financial assets and liabilities, including bank accounts, retirement accounts and pensions, real estate, vehicles, investment portfolios, and valuable personal property such as jewelry or collectibles. You should also identify all debts, such as credit card balances, auto loans, personal loans, student loans, mortgages, and home equity loans. Create a detailed list that includes account numbers, current balances, and whether each asset or debt is individually or jointly owned. 

Begin Your Independent Financial Future

As you prepare to separate your financial life from your spouse’s, it is important to open new accounts in your own name. Start by opening a bank account where you can receive your income and pay your bills independently. Additionally, consider applying for a credit card in your name, if applicable, to build or maintain your personal credit history, which will be important for your financial future.

You do want to avoid hiding any assets. Attempting to conceal property, income, or financial accounts can lead to serious legal consequences. There are ways to uncover hidden assets, such as forensic accounting, and if dishonesty is discovered, it can damage your credibility and weaken your case. 

Create a Post-Divorce Budget

One of the most important steps you can take is to create a projected post-divorce budget. Your lifestyle and expenses may change post-divorce, so it’s important to draft a realistic budget that includes: 

• Housing costs (rent/mortgage, utilities)
• Food and household items
• Health insurance and medical bills
• Transportation expenses
• Childcare or support payments
• Retirement contributions
• Personal Entertainment Expenses 

Having a clear picture of your future financial needs not only helps you plan realistically but also allows you to make informed decisions during settlement negotiations. 

Do Not Make Significant Financial Mistakes

Divorce can stir up all sorts of emotions, which can lead people to make poor financial decisions. In the heat of the moment, someone might try to spend out of spite or hide assets out of fear, for instance. Here are some mistakes to avoid during the divorce process:

• Making large purchases
  • You might decide that the only way through divorce is to book a luxury vacation or get a new car. This could backfire and negatively impact the division of property.
• Taking on new debt
  • It is best to avoid new credit cards, loans, or large financing agreements unless absolutely necessary. Consult with your attorney first.
• Stopping payment on bills
  • It may be tempting to stop paying household bills or joint debts, especially if tensions are high, but doing so can have serious consequences. Missed payments can damage both parties’ credit scores and lead to collections, repossessions, or foreclosures. 
• Quitting your job
  • It may be hard to go to work during a divorce, but it is important to stick with it. Putting in your notice to reduce income, particularly in an attempt to avoid child support or spousal support obligations, is a major mistake. Voluntarily leaving your job may signal to the court that you are not acting in the best interests of your children.
• Hiding assets
  • Concealing assets, whether by moving money to secret accounts, transferring property to friends or relatives, or undervaluing items, is one of the most damaging actions you can take during a divorce. Courts take asset hiding very seriously.

Contact an Experienced Massachusetts Divorce Attorney

Preparing for the financial impact of divorce can be overwhelming, but you do not have to go through it alone. An experienced divorce attorney can help you understand your rights, protect your assets, and develop a strategy that supports your long-term financial well-being. From evaluating property division to ensuring fair support arrangements, the right legal guidance can make all the difference.