If you are getting divorced, you may be worried about what it will do to your finances. Maybe your finances are heavily intertwined with your spouse’s, or you are worried about what your future will look like, given these changes.
Thankfully, there are ways to make this process clearer and to help yourself. Taking the following seven steps can aid in protecting yourself financially in divorce.
Plan and prioritize early.
Planning is one of the most crucial steps you can take to protect yourself during a divorce. Even if you have a general idea of what outcomes you want, sitting down early in the process and clearly outlining your goals can make it easier for you to understand your desires versus what may or may not be a reality as you come to the negotiating table. It also makes conversations with your spouse easier when you have a prioritized list to abide by.
Speaking of which, prioritization is important. For instance, do you want the family home? Or, would you be willing to let your spouse have it in exchange for a different asset? What sort of custody agreement are you interested in? How would that kind of agreement impact how much you or your spouse pay in child support and spousal support? Especially if you have children, planning for and prioritization of their well-being can help protect both you and them.
By planning what needs to be done, you can increase your likelihood of getting what you want and that you don’t forget any issues or details that might come back to bite you later and harm your financial health. This can be something you do on your own to take stock of your personal and joint finances, but it could also be something you and your soon-to-be ex discuss, as well, especially if you and your soon-to-be ex are cordial.
2. Establish your own bank account.
If you share a joint bank account with your spouse, consider creating your own bank account as well. That said, leave joint accounts alone until your divorce lawyer can advise you further. Refrain from moving money out of joint accounts into separate ones before the distribution process occurs.
At some point during the divorce process, the clock will be stopped, so to speak; joint accounts might be frozen or closed, and the money in the account(s) will get categorized as separate or joint, or some combination thereof based on the facts of your case and eventually be distributed between you and your spouse accordingly.
That said, opening a bank account apart from your ex allows you to start establishing accounts in your own name and building credit if you don’t have a credit history currently. It can also aid in preventing you from being liable for your spouse’s reckless spending or otherwise unsavory financial behavior they might be engaging in using an account that is in both of your names. Having your own bank account can help to isolate patterns of spending between the two of you.
Your own bank account can likewise provide you with a safe place to deposit money directly that is clearly designated as separate, such as a loan from a relative to help pay for your divorce expenses. Again, a separate bank account can ward against abuse by a spouse as well as set you up for financial success after divorce, given you would have a place to accumulate money earmarked for your present and future safely. The earlier that you can start this process, the better.
3. Monitor and separate your debt.
In the same way that taking stock of your assets is a crucial part of any divorce, so is taking stock of your debts. This is especially if you are trying to prioritize your financial well-being, including rehabilitating it. Not only will information about joint and separate debt be requested during the discovery phase of the divorce process, but it also is important to figure out what kinds of debts you have and how you wish to handle them moving forward.
During a divorce, you can generally consider debts to fall into one of two categories: separate debt and community debt. Separate debt typically refers to debts incurred before marriage or after separation. Most debts incurred during marriage are considered community debts, though there are some exceptions. Importantly, both you and your spouse can be responsible for a debt, even if you weren’t aware of its existence. Monitoring your debt is, therefore, an incredibly important step in protecting yourself, during marriage as well as after separation.
Usually, outstanding community debts will be paid during the divorce process using joint assets so that you and your spouse can exit the marriage with no community debts left over. Like assets, debts are divisible in divorce. So if you end up leaving your divorce with debt, your next step should be coming up with a plan to pay it off.
4. Take control of your credit score.
Your credit score will have been affected by marriage, especially if you had joint accounts with your spouse, or if everything was in your spouse’s name exclusively. Therefore, as soon as you know you are getting divorced, you should start monitoring, protecting, or, as alluded to earlier, building your credit score from scratch.
To this end, you should request credit reports to understand where your individual credit score is, as well as to make sure that there aren’t any errors, or that there aren’t debts you were not aware of previously. Understanding where your credit score is early in the divorce process can help you get ahead of any problems, instead of having to deal with them post-divorce when you are trying to build your new life.
5. Consider mediation instead of litigation.
Litigation can be an incredibly expensive proposition and is often a much more expensive and stressful process than mediation or some other alternative dispute resolution. In some cases, litigating can’t be avoided. However, if you and your spouse can negotiate amicably and without a court intervening, you are potentially more likely to walk away satisfied with the outcome, while spending less time and money.
Consider both the short-term and long-term implications of mediation over litigation. Mediation allows you to come to an agreement about what you and your spouse want with minimal court input or intervention, meaning you can discuss and negotiate with more freedom in the short term and realize the most desirable outcome in the long term. If at all possible, try to mediate; it will likely save you a significant amount of money.
6. Talk about retirement.
Though it may feel far away, retirement is actually quite important to discuss during the divorce process. Even though it may be several decades away, in Washington state, your retirement accounts may be considered marital assets, meaning that they may be subject to distribution now, though this can change in certain circumstances.
In Washington, any money earned in a pension or retirement account during marriage tends to be considered joint property of the couple. This means that it will have to be divided like any other asset. Determining the value of a retirement account can sometimes be a complicated or lengthy process, so talking about retirement with your spouse clearly and early can be a game-changer if you want to protect yourself.
7. Be honest
You may want to hide certain assets or information because you think it will protect you. Do not do this. Though it may be tempting, you put yourself and your financial well-being at risk.
If a court finds that you have hidden financial information or otherwise not turned over any relevant financial information pertinent to the divorce, you may be subject to harsh penalties, such as fines or jail time. A judge will be less likely to rule in your favor, meaning that you are less likely to get the outcomes you want from the divorce. When it comes to divorce, honesty really is the best policy.
Find a Seattle family and divorce lawyer who can help protect your finances in divorce.
At Elise Buie Family Law, our family law attorneys understand how divorce can be a time of significant change and stress as a result. It is why we make it a priority to not only help our clients take steps to protect their finances now, thereby minimizing stress, but also to give our clients the resources they need to become more financially aware in the future.
We also have a list of professionals at the ready, such as certified divorce financial analysts, we can recommend to help you along the way. This is part of our commitment to divorce education that extends well beyond your divorce decree.
With decades of cumulative experience negotiating divorce settlements, we can help at any stage of the divorce process. If you would like to discuss your individual situations, call our Seattle legal team today.