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Finances & divorce: How to navigate money if you break-up

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Most couples enter into a marriage with the dream of someday celebrating 50 years of wedded bliss with the love of their lives. It’s a pretty picture, but just about all of the data you’ll find on divorce rates rank your chances of enjoying that golden anniversary at just about 50 percent.

It’s a harsh reality, but with the majority of divorces, you’ll find finances to be the root cause of the dissolution of the marriage. This is often caused by a lack of experience and preparation before the wedding and the absence of teamwork during the marriage. After the marriage ends, it can be a free-for-all.

This article will help prepare you to have financial peace before, during, and after your marriage (hopefully, “after” isn’t needed). You’ll get some practical tips, but working with seasoned professionals to help you make sound financial decisions is always advisable.

Before you tie the knot

The best place to start your financial lives together as a couple is at the beginning — the day after you get engaged. You’ll both be thinking it, and one of you should say it.

Are we going to have a joint checking account or separate accounts?

There is no wrong answer to this question, as long as an agreement has been reached before the rings are on the fingers. If it hasn’t, the chances of celebrating the big 5-0 anniversary have just gone down.

Having some candid financial discussions and both of you laying all of your cards on the table will get you off to a good start and avoid any unwelcome surprises after you’re married.

[ Related: A stress-free guide to combining finances after marriage ]

Once the knot is tied

After you both say “I do,” you can set yourselves up for financial success as a couple by practicing these fundamentals together:

  • Lay out your financial goals
  • Create a budget and stick to it
  • List assets and liabilities to get a clear picture of your finances
  • Build up an emergency fund consisting of six months of living expenses
  • Systematically put money into savings, investment, and retirement accounts
  • Evaluate your life, health, and disability insurance

There are many excellent articles, blogs, videos, and books that can provide you with detailed information and steps to follow concerning these fundamentals.

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If the knot unravels

No married couple wants to think or talk about the “D-word,” but divorce is a reality for many couples. It’s not planned, it’s not wanted, but it happens.

It’s also expensive. There are attorney fees, court fees, taxes, and numerous other expenses. As a result, your emergency fund can be drained very quickly, as well as your checking and retirement accounts.

If it does become a reality for you, these are steps you can take to address money issues.

Separate your finances

This is one of the stickiest areas financially during a divorce. Assets you had before you got married remain yours after a divorce and need to be separated accordingly. You may have joint accounts that will need to be transferred to your spouse:

  • Bank accounts
  • Credit cards
  • Loans
  • Investments

Identify ownership

If relations aren’t too strained, sit together and list which assets are separate property and which are marital property. You need to know what you own and share so assets can be fairly divided.

Create your own net worth statement

Identifying ownership will help you see your net worth on paper. It’s a very straightforward 3-step process:

  1. List your assets
  2. List your liabilities
  3. Subtract your liabilities from your assets

This will paint a clear picture of where you are today — not tomorrow.

Your attorney will also need to see your net worth statement. It’s an invaluable piece of information that will help them best represent you during the divorce process.

Take care of taxes

Taxes will play a prominent role in both of your finances. From splitting bank and investment accounts to paying alimony, you need to deal with your current and future tax situation to help maximize your divorce settlement outcome.

If necessary, spend the money to utilize the services of an accountant and legal professional to help you (not your family law attorney). They’ll be able to assist you with:

  • Filing joint tax returns
  • Managing taxes affected by alimony or child support payments
  • Claiming the Child Tax Credit (if applicable)
  • Calculating capital gains that may apply if property is sold
  • Reviewing and adjusting (or creating) an estate plan

Tax laws are constantly changing, which by itself is a good reason to work with professionals.

Adjust your insurance

All insurance policies need to be reviewed during the divorce process. One spouse may need to be removed from coverage, policies may need to be revised, and beneficiaries will likely need to be changed. Consult with your insurance professionals or financial advisor to help you with this.

Split retirement accounts

Much of what you’ll be able to do in this area will depend on the state you live in, which is another reason to have professionals assist you before you make any moves. It’s a complex process that will significantly impact you now and in the future.

Some details that need to be considered are:

  • Taxes: Generated by direct payment to you or eliminated with a rollover
  • Prenuptial agreements: Is there one in place?
  • Financial impact: How will splitting your retirement accounts affect your new budget or current standard of living?

Look into Social Security benefits

If you’re age 62 or over, you may be able to receive Social Security benefits from your former spouse. It’s best to check into this before the divorce is finalized to help you have a clearer view of what your financial future is going to look like.

In addition to being 62 or older, you’ll have to meet additional criteria:

  • Be unmarried
  • Have a former spouse who can claim Social Security or disability benefits
  • Have social security benefits available to you that are less than what you would receive from your former spouse

These benefits will apply even if your former spouse remarries.

Revise your estate plan

There’s much to be done in this area as well. Wills and trusts may need to be amended, inheritance beneficiaries changed, and trusts for children created. An estate planning attorney is your go-to advisor for this.

Getting re-established

Once the dust settles and your divorce is finalized, there are a few things you should do that will help you get your bearings financially and get your new financial life off to a good start:

Don’t make any big decisions right away

After a divorce, you’ll be experiencing many emotions — anger, sadness, maybe even joy. Get your bearings first — wait until you can make rational decisions that you won’t regret later down the road.

Be conservative with your spending

You may be tempted to indulge yourself a little, thanks to your newfound financial independence and a possible influx of cash. Resist the urge and put a moratorium on any non-necessities for at least three months. Creating a new budget for yourself will be of immense help with this.

Ask for help

Attempting to get your finances in order before the divorce is no guarantee that everything will be smooth sailing afterward. Don’t try to go it alone. Continue to use your financial advisors, and if you don’t have one already — enlist the services of a financial planner.

[ Related: Should you embrace DIY financial planning or hire a pro? ]

Final thoughts

Emotions can run high throughout the process of getting divorced. Use family and friends for support, in addition to your financial experts. They’ll help you think more clearly and keep your emotions in check, which will assist you in making sound financial and personal decisions.


Having spent over fifteen years helping people plan their lives financially, Bob has a vast amount of personal knowledge concerning estate planning and many other end-of-life details. During his career, Bob mastered many different financial products to help people achieve their financial goals, including life insurance, disability insurance, mutual funds, and stocks and bonds. He earned the Chartered Life Underwriter (CLU) designation and held numerous securities licenses. Bob is an internationally published poet and is now a freelance writer living in North Texas with his wife and Doberman puppy.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

Money
Published November 30, 2021