Once you and your spouse have decided that divorce is the best option you will likely want to get things moving quickly. Even if you want to proceed as soon as possible it is important to first take a few hours to fully understand your finances. If you are not financially prepared you could get surprised with unsettled debts, lost documents, and unknown future expenses. Follow these seven steps to get a better understanding of your financial situation.
1. Know your credit score
One of the easiest ways to get a handle on your finances will be to check your credit score. It can indicate that you might be in good standing for getting a rental or if you have any unnoticed outstanding debts. If you have a good score then you will want to protect it throughout your divorce. You can establish separate spending accounts with your spouse which will help protect your credit.
2. Find out how much you are both earning
Most people have a general idea of their spouse's earnings, but more often than not they really don't know the details. This includes wages, bonuses, overtime, etc. When you file for divorce an attorney will ask for proof of income from both parties. Get a hold of a pay stub from both you and your spouse. It will also be helpful to get a copy of your joint or separate bank statements.
3. Get the full picture of all family debts
You might already be thinking about your mortgage loan but don't forget to look at any remaining debts. Find statements for your vehicle loans and credit cards. It doesn't matter whose name is on the lease or card, the debt will be divided between you both. You don't want to be surprised by major credit card bills in your spouse's name. Typically student loan debt will be assigned to the one who used it. If you both greatly benefitted from one spouse's education, then the loan debts may be divided between you two.
4. Look into retirement and pension accounts
The 401(k) account that has been slowly accumulated money over your career is subject to division in divorce. Any other retirement or pension accounts are also up for division. In some cases these accounts can be more valuable than any of your other assets. It's important to know how both of your accounts currently stand.
5. Find your tax return
Most people are weary to hear that their attorney will want a copy of the past three to five years of old tax returns. It is smart to be prepared before proceedings begin. Reading your tax returns can also help you understand your partner's finances before divorce.
6. Look at your insurance policies
You and your spouse might have an life insurance policy set up. If that is the case then you might want to contact your insurance agent to remove your spouse as the beneficiary. If your life insurance policy accumulates money over time then the cash value will be divided equally in a divorce. Make sure to find out how much is in the account and list it as a martial asset.
7. Prepare for separate living expenses
The biggest shock to your finances will be from separate living expenses. Most people do not properly accommodate for separate rent, mortgage, food costs and basic essentials. Everything will add up quickly. If you get a head start on searching for an affordable living situation and saving money in the mean time then the transition will not be as hard.
Once you have set aside time to look into each of these seven steps then you will be better prepared for divorce. Contact an attorney to learn more about preparing for your finances for divorce.