The millions who have gone through it know that divorce, with its entanglement of enormous emotional, financial and logistical challenges, is far from easy. Faced with the prospect of divorce, however—and with an understandable desire to get through the process as quickly as possible—people can make financial mistakes that affect them long-term.
“I always remind clients that you have one shot at getting the right settlement,” says Jacki Roessler, a certified divorce financial analyst (CDFA) at the Center for Financial Planning in Southfield, MI. “You can’t ever go back and change it.”
Moving through the process thoughtfully and taking adequate steps to prepare can help you avoid making a mistake that will affect your life long after the divorce. You can also sidestep the financial surprises that nearly half of women say they’ve seen during divorce proceedings, according to a recent divorce financial study.
Gather Full Records and Statements
Create a snapshot of your current expenditures and income, as well as all savings, retirement and investment accounts. “Make a list of all of your assets and debts,” Roessler advises, noting that you will have an easier time accessing many records, particularly joint ones, before you begin divorce proceedings. Tax returns will also come in handy.
With all of your financial records in one place, you can create a working budget, so you know what to negotiate in a settlement. “That information is powerful,” Roessler says. “Knowing up front what you can and can’t afford is more important than being emotionally tied to any one asset.” A large family home that you might love to keep might not make sense in the post-divorce reality, for example. And a money-saving tip: Having the records already also means that you won’t have to pay your lawyer or another professional to find them for you.
Sara Stanich, CFP and CDFA, and founder of Cultivating Wealth in Brooklyn, NY, recommends taking that inventory one step further. “When you make that list of assets, note which of them started before the marriage,” she says.
Build Your Own Financial Picture
Check your credit score. If your score is low—600 or below—start taking steps to improve it, and also begin building credit in your own name. “Make sure you have your own bank account,” Stanich says. “If you don’t have any credit cards in your own name, get one.”
Read Up on Divorce Law
Search your state laws as they relate to alimony, divorce and pension division, or speak with a qualified family law attorney; you can find one through your state’s bar association. “The most important thing that anyone can do is educate themselves about the divorce laws in their state,” Roessler says. Every state is different. For example, in Michigan, where Roessler is located, alimony can be set up as open-ended, or for a certain number of years—a key consideration as you negotiate a settlement.
Save
Start setting aside funds for the divorce proceedings, Stanich advises. The costs can vary widely, so it makes sense to think ahead about how you’ll go through the process. The average uncontested “do-it-yourself” divorce with few assets at stake costs $500, according to LegalZoom. Mediation, on the other hand, may cost several thousand dollars, while working with divorce attorneys can push costs even higher.
“Try to get a sense of which option might be the best for your family,” says Stanich, noting that mediation may help you save on legal expenses and minimize acrimony, but will only be a possibility if you can communicate openly and honestly with your spouse. “It’s important to do the research,” Roessler agrees. “If there’s a financial issue, or major disagreement, a collaborative divorce might not be the right fit.” If you’re unsure about your options, consult either a qualified family attorney or a CDFA before moving ahead.
Future Proof
Often as part of the divorce agreement, if you will be receiving alimony or child support, it will be secured with life insurance paid for by your spouse, Roessler says. But she adds that while your spouse is likely to be the one making the payments, you should push to be listed as an owner as well as the beneficiary. As an owner of the policy, you will be notified if a payment is missed, so it can be made up without the policy lapsing. And as an owner, you can prevent your ex from changing the beneficiary, should your ex remarry.
Roessler also advises her clients to get a copy of the qualified domestic relations order (QDRO) once the divorce is final, so pensions and other assets are properly distributed in the event of a death. “It doesn’t really matter what your judgment of divorce says—the only thing that divides up that pension or 401(k) is actually the QDRO,” says Roessler.
While no one is ever fully prepared for divorce, getting your financial house in order ahead of time can help you weather the difficulties and make smart decisions. Additionally, you can take the time to process emotions that might correspond with hard choices, before they happen. If you can’t keep your marital home, for example, “it’s better to know in advance and have that conversation with your kids, and to come to terms with it yourself,” Roessler says. “It’s a matter of being realistic and stepping into the driver’s seat.”
Marcia Lerner lives in Brooklyn, NY, and writes on finance, healthcare and children's literature. Her articles and reviews have appeared in the New York Times and Proto magazine as well as many financial websites and magazines.
Women can do some things in their own lives to shore up their reserves and rise above the statistics. Here are a few places to start.