We all know that breaking up is hard to do, and sometimes, it's not the part about splitting with one's spouse that's difficult, it's severing the financial ties. A lot of people find money difficult. They hate to have to sit down in front of their computer for an hour and pay bills online, or they hate having to write out a dozen checks. It's just not fun.
When it comes to divorce, a lot of it has to do with money. We're talking about bank accounts, mortgages, auto loans, taxes, credit cards, health insurance, life insurance, retirement accounts, beneficiary designations, estate planning, medical debts, and all other types of debts.
When you're married, it's as if you and your spouse are one financial machine, and it can be the most overwhelming aspect of a divorce. So, in order to help get you organized, we're going to shed some light on what you need to start doing today to get financially prepared for your upcoming divorce.
Getting Started on the Financial Aspect of Your Divorce
The first thing you want to do is write down a list of all of the financial accounts (including auto, life, and health insurance) and debts for you and your spouse. Write down the account name, the balance, and the monthly payment.
The second thing you want to do is make a copy of all of your most recent financial records, including all: bank accounts, credit card accounts, auto loans, taxes, health insurance policies, life insurance policies, retirement accounts, mortgages, auto insurance, medical debts, wills and trusts, student loans, and any other financial account that you or your spouse may have.
Third, run a copy of your credit report and your spouse's credit report and make sure you crosscheck the accounts on the reports with your records. Did you miss anything? Is there an account being reported that shouldn't be? Which accounts are in both of your names?
Once you and your spouse have a full and clear picture of your monthly household expenses and all debts that you have as a couple and individually, you want to assemble all of that information into a neatly organized package for your divorce attorney. This means provide copies of everything!
We also recommend that you compile a list of your monthly expenses and debts so your lawyer can get a picture of your financial situation.
What You Need to Know About Debt
If you and your spouse have debt, you may want to see if you can afford to pay it all off (probably not including your mortgage and auto loans) before the divorce is finalized. This way, you can make a clean break.
If you can't afford to do this, please be aware that you are legally liable for the marital debt, even if your spouse agrees to pay a certain debt. What do we mean? Let's say your wife agrees to take the minivan auto loan and you agree to take your pickup truck auto loan. After the divorce, your wife loses her job and can't afford to pay the payments on the van.
In this situation, the lender for the minivan can go after you for the debt because your name is still on the loan, and the van was purchased during your marriage, and therefore the van was a "marital debt."
If you fail to pay the payments on the van, your credit will be damaged, the van can be repossessed, and the creditor can sue you for the defaulted loan amount, regardless of the fact that your wife agreed to take on the minivan debt.
If you have joint debts with your spouse, you're much better off: 1) either paying them off completely and closing the accounts, or 2) switching the accounts so they are in one spouse's name alone. It's best NOT to have joint accounts with your spouse after the divorce.
For example, if your spouse wants to keep the marital home, you want your name off the mortgage, otherwise, you could be held liable if your spouse defaults on the loan. Not only that, you could have trouble qualifying for a loan in your name if you still have the mortgage on your credit.