A divorce is always a personal tragedy, but the dissolution of a marriage can be a financial tragedy as well. From the newfound need to set up a separate households to the inevitable fights over the house and financial assets, divorce can be an expensive process as well as a heartbreaking one.
That is why it is so important for divorcing spouses to take a proactive approach to their finances. Whether you were the main breadwinner in the family or a stay-at-home parent, you need to protect what you own and safeguard your finances throughout the divorce process. Here are six essential steps soon to be ex-spouses need to follow when divorce is on the horizon.
Step #1 – Establish a Separate Bank Account
Establishing a separate bank account is an essential first step, and something that every divorcing spouse needs to do. Even if you have had your joint bank account for ages, you need to establish your own financial identity as soon as possible, and that starts with establishing your own bank account, one that is in your name alone.
Step #2 – Start Building Your Own Credit
If you have been relying on your spouse and their credit history, now is the time to start building your own credit profile. Your credit score will be a vital part of your new single life, essential for everything from buying a car to securing a mortgage. If you do not know your personal credit score, now is the time to find out. If your credit needs some help, you can start taking steps to improve it – before the divorce is final.
Step #3 – Update Your Beneficiary Designations
You probably do not spend a lot of time thinking about the beneficiary designations on your insurance policies and retirement accounts, especially if they have been in place for some time. Even so, updating your beneficiary designations is an essential part of divorce planning, and one you should not put off. If you fail to update your beneficiary designations, the money you have worked so hard to accumulate could end up going to your ex-spouse instead of the people you really want to have it.
Step #4 – Calculate Your Net Worth
The financial assets you have accumulated during the marriage will become part of the divorce settlement, so it is important to know where you stand. Now is the time to calculate your net worth, from the value of the stocks and bonds you and your spouse own to the balances in your bank accounts and retirement funds. Calculating your net worth now can protect you during the divorce and make planning for your newly single future a lot easier.
Step #5 – Track Your Expenses
Now that you are about to be single, you need to know how much money you are spending. Take the time to track your finances for a week, then a month – it will show you where you stand and what you need to do going forward. It can take some time for the divorce to be settled and the assets to be split, and you will need to watch your expenses carefully, especially during this transition period.
Step #6 – Create a Budget
Now that you know how much you are currently spending, it is time to create a household budget. Without your soon to be ex-spouse in the picture, your household is now a bit smaller, but that does not make your budget any less important. In fact, your budget is even more critical now, and it is important to have this spending plan in place.
Your marriage may be coming to an end, but your financial life needs to go on. Following the six steps outlined above can help you get a handle on that financial life, so you can embrace your new single status and recover from the shock of your impending divorce.