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For some couples, no amount of marriage counseling is enough to avoid a divorce. It's a tough process emotionally and financially.
Untangling two people’s money is messy. Long before spousal or child support is awarded or your post-divorce budget is in place, you’ll need to prepare your finances for the work ahead.
Because each divorce is unique, specific advice can only come from experts familiar with your case. However, the following tips should point you in the right direction.
1. Be wary of well-meaning advice
Divorce laws vary by state, so be cautious of advice that seems to be a one-size-fits-all solution — whether you read it online or received it from a friend. If you're unsure whether you should move money, change accounts or make any other financial moves pre-divorce, consult with an attorney licensed in your state.
2. Track expenses — and anticipate future ones
As soon as you know divorce is inevitable, begin tracking your household income and expenses. This will not only help build a budget post-divorce, but it is also crucial for your attorney and later the judge in deciding how to split assets and debts, and whether to award spousal or child support.
If you’ve already been tracking as part of your budget, even better: You have a record of past months and years. If not, start now, and include household bills, food, clothing, entertainment, home maintenance, transportation, child care and anything else that you spend money on. Use your bank and credit card statements to estimate spending from past years. Next, project future expenses.
“Look beyond the normal monthly expenses and include things like your holiday trips, vacations and seemingly ‘one-time’ expenses like replacing the dishwasher,” says Avani Ramnani, a certified divorce financial advisor with Francis Financial in New York City. Use previous years as a guide, but remember, circumstances change. For example, if you have children, you'll transition from spending on child care to spending on after-school activities and eventually car insurance and college tuition.
3. Gather documentation
Your financial records tell the story of your marriage’s financial health. Gathering these documents can be tedious and time-consuming, so start as early as possible.
If you and your spouse share any accounts, your financial institutions or advisors have no obligation to keep your requests confidential.
Checking and savings account statements (past year).
Retirement account statements (current, if contributions haven't changed).
Investment account statements (past year).
Credit card statements (past year).
Recent pay stubs.
Lists of assets and debts brought into the marriage and those accumulated since marriage.
Income tax returns (past three years).
The Institute for Divorce Financial Analysts offers a checklist of financial records you’ll want to prepare.
4. Prepare for resistance
“In amicable divorces, there is a free exchange of information," Ramnani says. “However, in adversarial situations, one spouse might not release documents unless they’re legally forced to do so.” This is especially likely if one spouse controlled the household finances.
Even if relations seem cordial, anticipate rough patches. You might decrease the likelihood of confrontation by gathering the important paperwork before filing. If your spouse fights you every step of the way, ask your attorney about court-ordered options.
5. Refrain from big financial decisions
The divorce proceedings will determine all of your major financial changes. It might be tempting to get a jump on tasks like adjusting your life insurance beneficiaries — but it's best to wait.
“Changes to beneficiaries, wills, retirement accounts, and the like will be sorted out in the (legal) proceedings,” says Caleb Ballew, divorce attorney with Martinson & Beason in Huntsville, Alabama. “If you make such changes prior to the divorce, the judge could award your spouse.”
If you’ve already filed, Ballew says, making such changes without the blessing of the court could be grounds for criminal contempt charges. Ask your attorney if you’re unsure about a particular move.
6. Be conservative when spending and saving
Separating joint finances is sticky, and much of the process depends on your state laws — some treat all income, assets and debts as if they're part of a single pot. Emptying that pot, or even dipping into it more than usual, in the weeks and months before your divorce could be detrimental.
“There is no advantage, and perhaps a disadvantage, to being the first one to the bank,” says David Clarke, a divorce attorney with Blankingship & Keith in Washington, D.C. He recommends keeping all financial matters transparent with your spouse.
Continue to use your accounts — individual or joint — as usual. If you don't have money set aside for hiring a divorce attorney and other related expenses, try to agree with your spouse about each spending a conservative and comparable amount, Clarke says. If your relationship isn’t amicable, ask your attorney about a legal separation, which would dictate how you both use money until the divorce is finalized.
7. Know when to get help
Whether your divorce is amicable or adversarial, a lawyer can help you sort through the separation of your lives and finances.
“Engaging a lawyer should not be seen as an act of aggression,” says Clarke, who adds that the specifics of a divorce are “too weighty to be negotiated at the kitchen table.”
In addition to your attorney, a certified divorce financial analyst can offer expertise concerning divorce's effect on your current and future financial health.
CDFAs can help those in the midst of divorce or even just considering it. An increasing number of people contact them to ask whether a divorce is financially feasible, sometimes even before contacting an attorney, according to Carol Lee Roberts, president of the Institute for Divorce Financial Analysts. You can also ask a CDFA to judge the merits of your divorce settlement and how to best structure it.
Roberts says though wealth might spur someone to contact a CDFA, they're equally valuable for folks without a mountain of assets. “Even if your divorce is more about dividing debts, it’s important to talk with a financial expert,” she says.