Marriage is defined as “the state of being united as spouses in a consensual and contractual relationship recognized by law”. When two people enter into a marriage the expectations are that it will last for the rest of their lifetimes, for better or worse, until death do them part. However, some marriages – as hard as people may try – don't always last a lifetime.
A marriage may result in separating ways and end in divorce regardless of how hard one or both parties try to make it work. This can be a giant roller coaster of emotions. With everything going on there is one extremely important thing many people neglect to think about...YOU. If you find yourself going through a divorce you need to look out for yourself and your financial independence. Too often we see a separating spouse blindsided by certain financial realities. Take a look at these 5 steps BEFORE getting a divorce to ensure you are looking out for your own interest before the divorce finalizes.
1. Audit your current financial situation
Divorces can be unexpected and abrupt. They can also be prolonged and only come to fruition when a step is finally taken to formalize it. Regardless of sudden or more prolonged, there is an urgency with awareness of your current financial situation as a married couple.
With some couples, one person handles the finances more than the other person. While this is not recommended, it does inevitably happen. And in some cases of couples separating we see females who are left in the dark about the financial state of the two as a couple. Whether it be because the husband assumed the role or the wife is staying home with the kids, it is more common for the woman to be less aware of the couple's financial state. However, this can undoubtedly go both ways and both should take this step into consideration regardless of which role.
This is something you need to protect yourself from. If you know that a divorce is coming, you will be initiating a divorce soon or you just had the bomb dropped that your husband or wife wants a divorce, take this step with extreme urgency. Print out or make copies of bank, brokerage and retirement statements, credit card statements, trusts, or joint investments. Have hard copy evidence of any and all of assets of the marriage.
Why do this?
The hope is that the divorce will be an amicable one, however, when emotions run high, one party may do something out of spite. We've seen instances of a spouse trying to shield assets from the other, change account authorizations to restrict the other spouses access, or hide any information that would benefit them-self to do so in the event of a divorce.
So how do you combat this? First start with educating yourself on your current financial situation. If you have a financial advisor you trust, set an appointment with them. If you want to consider a different financial advisor that is independent of your spouse, make an appointment accordingly.
Be aware of any outstanding debt there may be. Sometimes one side of the couple is blissfully unaware of the amount of debt their spouse is racking up while they are still married. This can come out when the divorce is in process and may leave both spouses responsible for the debt regardless of who created it.
Its far too important to be prepared with documentation in case your spouse decides to try and change log-in information etc. preventing you from getting access to these records later on. Do this with urgency to protect yourself and take control of your financial independence.
2. Establish your own credit
In the event that a couple shares credit card accounts, it may be likely that the account is held in one person's name while the spouse has authorized access to use the credit card. You may be unaware that the account is held solely in your spouses name. This information will need to be figured out because simply having your name on a credit card does not mean that you are establishing any credit. Typically we've seen this with a spouse who does not currently work. They have a credit card under the working spouse's account because of this.
Why do this?
When a divorce occurs, this becomes important. Having a credit card in your own name helps build your credit. You will be better able to be approved for a new mortgage, based on your own qualifications, if you decide you want to purchase a home on your own, or any loan that you may need. This should be done before the divorce proceedings happen. Especially if your spouse earns significantly more than you do or if you didn't have an income while married. It is a lot easier to get approved for one while still married with a joint income. Also, a credit card can help with the day-to-day expenditures when you're still figuring everything out in the divorce settlement.
3. Review and revise beneficiaries, wills, health proxy, power of attorneys and other estate plans
When two people get married, it is not uncommon for them to make each other their beneficiary, health proxy, power of attorney, executor etc. When you're married, you want your spouse to be the beneficiary and you believe they will carry your wishes out should something happen to you. This changes when a divorce occurs and should be looked at carefully.
Why Do This?
When you know you'll be separating ways it is best to review and revise these. Change each of them to reflect the current situation. You may want to consider using a family member of your own or children if any are of age to do so. It is best to review them with a trusted individual and most financial advisors would be willing to help you with this process.
4. Adjust your budget for your new financial independence
Many married couples have two incomes coming into the household. You get used to spending at a certain level without feeling any financial pressure. This level is typically more than you would be spending when you were single and operating on your own salary. When you are entering into a divorce, it's time to adjust your budget and become acutely aware of where your money is going. To do this, start by taking an objective look at what your new budget will be. Look at the expenses that are necessary and then look at ones that you would be able to eliminate. Create a new budget you can commit to on your own.
Why do This?
All too often we see a recently divorced woman or man trying to live the same lifestyle as they did when married. It can be a harsh reality when they realize this can no longer happen. Any reduction in income takes some time to get used to. You may have to sacrifice shopping trips, golf outings, getting your nails done, or other luxuries you were able to comfortably afford as a married couple. Understand that life is changing. Doing this step will help you find your new financial independence and put you in the best position for your financial future.
5. Surround yourself with those who will support you
Going through a divorce most likely won't be cut and dry. Any situation that involves emotions from 2 or more parties makes it difficult. Sometimes divorces are sudden... and some times it is a long time coming. No matter how the divorce has transpired, it is extremely important to surround yourself with people who support you. Especially in a time where a lot of decisions will need to be made.
Why do this?
You need to surround yourself with those concerned with your best interests. Divorces can hold feelings of resentment or distaste towards the other spouse. When emotions are all over, people may do things that they wouldn't normally do, out of spite. Have the support behind you to make sure you stick up for yourself but also be there to tell you when it's best to put your pride aside and come to an agreement.
Going through a divorce can be an emotional and even traumatic event. Just remember, it doesn't define who you are. You WILL make it through this and your life WILL move on. Be mindful to protect yourself in the process and be confident that you can start again with new financial independence! Consider each of these 5 steps to take when getting divorced. Hold your support system close and don't be afraid to call in some professional advice.
Most financial advisors will be able to guide you through this process and help you make good decisions that are in your best interest. If you are from Western New York, we would be happy to review your situation and offer suggestions. Call us at 716-662-4470 or click the button at the bottom to schedule your free consultation.