When you get married, the last thing you are thinking about is, "What happens to my money when I get divorced?"
Let's face it; no one plans on getting divorced, but it happens and at an alarming rate. While there’s some debate about the exact divorce rate in the U.S., many agree that it’s somewhere around 50% depending on where you live.
Before you got married, you might have decided on a prenuptial to help ease the financial burden should you get divorced later on. But whether you have a prenuptial in place or not, the fact of the matter is that if you decide to divorce, all bets are off when it comes to dividing up assets. Even financial items and strategies that you previously agreed upon can become sources of contention during a divorce.
Not to worry, because we’ve put together a list of the five tips to financially survive a divorce.
Tip 1: Get an early fresh start
A good decision to make before you file for a divorce is to start fresh and open a new credit card in your name only. This is important because there are many things in life that require you to have a credit card in your name. Things like renting a car, buying a plane ticket or even shopping online.
A new credit card also helps to establish separate debt that isn't tied to your spouse. If you have no credit or very little credit, it's very important to establish yourself before the divorce is filed. Often you can use your future ex-spouse's credit history to help you qualify for the new card in your name.
You'll need first to check with your lawyer, or your state laws, to make sure that any new credit card you open won't be considered a marital asset. If that is the case, then start fresh with a new credit card once the divorce is finalized.
If your credit score isn’t as stellar as you would like, think about opening a credit card and a checking account at a credit union or a regional bank where they are more liberal with their credit requirements and often look at the individual before their score.
Tip 2: Perform a credit check
Now is the time to check your credit score if you haven’t already this year. Your credit score is your lifeline to scoring the best rates on all sorts of loans, and you want to make sure that your credit history is accurate. Checking your score is fast and easy and can be done with companies like Credit Karma or Credit Sesame. You’re aiming for a score of 740+ to secure the best credit rates for all sorts of loans.
You’ll also need to have a copy of your credit report when you meet with your attorney. (Federal law guarantees you one free copy from each of the three big reporting bureaus annually.) This will help you figure out any joint debts as well as the amounts owed on those debts. Unfortunately, a divorce can sometimes bring out the worst in your soon-to-be-ex spouse, and you can find yourself in a credit mess if you aren't careful.
When you check your credit, you are looking for:
Your credit score with all three credit bureaus – TransUnion, Equifax, and Experian (it’s quite common that your score will be different for all three bureaus)
Credit that is open and valid in your name
Credit that is open and shared jointly
Any credit errors that don’t belong to you, which you will want to fix right away
Tip 3: Work out a payment plan
Divorce attorneys are expensive. There’s no way to sugar coat it. Most people pay somewhere around $15,500 and up for a divorce. If it is a highly contested divorce, those numbers can skyrocket. One of the key reasons for the steep price tag is that divorces can take many, many, many months, if not years, to be finalized, which for you means high priced lawyer bills. Every time you talk or email your attorney the time clock is running, and your bill is increasing.
What most people don’t realize is that you can negotiate your bill with your lawyer and even work out a favorable payment plan. Most lawyers understand the high price of divorce and are willing to be flexible with you to a degree. Depending on your income, you might even be able to work out a monthly payment plan to pay for your divorce over the course of a few months or more, to ease the burden of your budget.
Tip 4: Get your budget in check
Getting a divorce is financially devastating. Even in the "best" cases, you will likely have to pay high lawyer fees and potentially things like child support or spousal support before the divorce is finalized. Add to that the cost of finding a new place to live, and potentially the cost of buying new furniture, and you can easily break your budget if you aren't careful.
No matter where you are in the divorce process, it's time to get your budget in check and make sure you have an accurate representation of how much you are spending each month. If you have any new expenses, work those into your budget and leave a good pad of at least 5% of your paycheck to protect you from any surprises.
If you’re new to budgeting, there are a ton of resources online. You can choose to create a DIY budget easily with tools like Excel, or use an app to get your budget in shape. Whichever method you choose, stick with it both during the divorce and after it’s final so that you stay on top of your spending and saving.
Tip 5: Ask for life insurance
Life Insurance can play a significant role in a divorce and be a financial savior for you and your family. If you rely on your spouse for income or child support, life insurance can provide a safety net if something were to happen to your ex-spouse. The decision to ask for life insurance is something that you will want to discuss with your lawyer to be included in part of the divorce settlement if it makes sense in your situation.
Life insurance comes in many different shapes and sizes, so you will want to make sure that you are requesting the type of policy that will work best for you. Often, working with a financial advisor during your divorce is a very good idea to help you get expert advice in this situation. There are many different reasons why you might want to incorporate life insurance if something were to happen to your ex-spouse, including things like:
To provide funds to cover the cost of child support for a given length of time
To provide extra retirement funds for you
To pay off certain debts that are held jointly even after the divorce
To provide spousal income for you for a given length of time
Divorce is hard on just about everyone. Emotionally and financially it can be more than most people can handle. During this time, making smart money moves is critical to looking out for your financial future. Do your best to remain calm and think through each money decision as logically as possible, and also, ask questions when you don't understand. You'll thank yourself later for doing so.
Photo: Matthias Weinberger