How to Financially Prepare for Divorce: 6 Money Moves You Can't Afford to Ignore

By Joe Dillon, Divorce Mediator

Founder & Divorce Negotiation Expert

Equitable Mediation Verified

Original Publish Date: September 17, 2024

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When you think about how to financially prepare for divorce, what comes to mind?

Thinking about how much child support or alimony you’ll have to pay or should ask for? Or gathering up copies of your tax returns and spouses paystubs?

While taking these steps are certainly helpful, there are a whole host of other things you can (and need) do to financially prepare for a divorce.

Here are my 6 smart financial moves to make right now, before you enter divorce negotiations.

 

1. Create a Budget

If I asked you right now, how much you spend a month on groceries, could you tell me?

My guess is you probably could.

You’d simply look at your credit card statements, identify the charges from your local supermarket or Costco, and add up the costs.

But what about the ones that aren’t so easy to quantify?

Like drive thru meals for your kids on the way to soccer practice? Or money spent on birthday, and/or holiday gifts?

In my experience, most people have no idea what they spend on these kinds of things on a monthly or annual basis. Yet it’s these very things that drive most people’s spending.

And cause them to quickly get into credit card debt.

The only way to avoid going deeper into debt, and effectively manage your finances post-divorce, is to create a budget.

Actually, two budgets!

One for what your life looks like now, and one for when you’re divorced.

Doing so will allow you to understand if you need to reduce expenses, or increase your income, in order to make ends meet. Or if you can maintain the status quo now, and into the future.

Pro Tip: Purchasing our Pre-Divorce Financial Preparation Kit can provide you with a structured and proven process to help you investigate, understand, and take control of your spending, before, during, and after your divorce is final.

This will greatly increases your chances of financial stability post-divorce.

 

2. Create A Balance Sheet

Just as budgets can help you understand what your current marital spending looks like, a balance sheet can help you understand what your current marital assets and liabilities look like.

So, why is preparing a balance sheet a critical step in preparing financially for a divorce?

Two reasons.

  • First, the balance sheet will serve as the foundation of your property division negotiations in your divorce. Allowing you to see everything you and your spouse own, and everything you owe, all in one place.
  • And second, by preparing a complete list of your assets and liabilities, and their respective values upfront, you can begin to form your negotiation strategy before you enter the divorce process.

Giving thought to what assets you’d like, and what liabilities you’re willing to take on once you’re divorced.

Pro Tip: Most people don’t realize the answer to the question, “Who gets what in a divorce” is decided entirely through negotiation. There is no magic rule book that says, “I get this, you get this,” etc.

In most cases, it’s up to you and your spouse to ultimately decide.

So by knowing in advance what you own and what you owe, you can more easily and expertly form your negotiation strategy.

 

3. Decide if You Can (or Want to) Stay in the Marital Home

When my mom got divorced, she was laser focused on keeping the house. No matter what the cost. To her, it was more than just a house, it was our home.

And no one was going to take it away from her!

And while in retrospect I can appreciate her decision, the financial cost to her - and the emotional cost to me, was immense.

As I recall, she waived her rights to my father’s pension, took out a mortgage at 11% interest, and worked multiple jobs to make it work.

Meanwhile, 14-year-old me was not ready to be a homeowner, spending my weekends cutting grass, cleaning gutters, fixing leaky toilets, and raking leaves.

But there I was.

So, if you own a home, and you’re thinking you’d like to stay there, keep that in mind as you prepare for divorce.

Understand not only the costs associated with your monthly mortgage payment and taxes, but also the cost of necessary maintenance like landscaping, snow removal, gutter cleaning, etc. required to keep the home in good working order.

Doing so upfront will allow you to give thought to your negotiation strategy as you enter the divorce process, and what you’re willing to trade, or will need to do, in exchange for keeping the house.

Pro Tip: Once you’ve prepared your balance sheet, you’ll have a better idea of the amount of equity in your home. As well as how much you may have to give to your soon-to-be-ex to buy them out.

Work with a mortgage professional to understand more about the mortgage options available to you, and what you’ll need to do to qualify.

 

4. Consider Credit Counseling

Speaking of mortgages, getting one, and one with a favorable interest rate, requires an excellent credit score.

And since credit scores are probably not on your list of things you think about every day, knowing your score, and taking steps to improve it, should be high on your list as you begin to prepare for divorce as a woman.

For many of the mediation clients I work with, only one spouse is the primary account holder for the couple’s credit cards, mortgages, and other debts. And it’s that spouse’s score that is supported by timely payments, and loan longevity.

So if you’re the “other” spouse, you’re an unknown. With very little credit history. And therefore, a big risk to lenders.

Which may make getting credit difficult.

Pro Tip: Visit the Annual Credit Report website to download free personalized reports from all three credit agencies. You can also consider scheduling time with a credit counselor to see what steps you can take to improve your credit score.

Doing so now will help when it comes time to open new credit cards or apply for a mortgage if you decide you want to keep the house.

 

5. Evaluate Social Security Benefits

I can’t believe what I’m about to say, but did you know that the IRS has an excellent website?!

I know. I didn’t believe it either.

One of my favorite posts on their site is about how a lower earning spouse can collect Social Security benefits based on their higher earning ex-spouse’s income.

It’s a great read if you can find the time, and if you’re approaching retirement and facing a divorce, it’s important!

If you’re divorcing later in life (also known as a gray divorce), you’ll want to understand what you could expect to receive in Social Security benefits if you applied using your soon-to-be-ex’s income.

Pro Tip: If you don’t already receive a copy, learn how to get your social security benefit statement to see how much you qualify to receive, and compare it to what you’d get if you were to apply under your spouse’s income, so you can maximize your benefit.

 

6. Find a (Better) Job

When planning for divorce financially, you must understand that two households are more expensive to run than one.

Especially if you have children.

So, expect your post-divorce cost of living to go up. And with it, the likely need for your detached family unit to generate more income than you currently do.

Which may require one or both of you to switch jobs or for one of you to re-enter the workforce.

Remember, every little bit helps. So even if it means a part-time job, or a modest bump in pay, it may be worth considering.

Pro Tip: Many community colleges offer career counseling. And if you’re a college graduate, don’t forget your alumni association as well. They may also have resources available to assist you in finding a (higher paying) job.

 

 

Other Useful Resources:

Joe Dillon, Divorce Mediator

Written by Joe Dillon, Divorce Mediator

Joe Dillon is a divorce mediator and founder of Equitable Mediation. He holds a Master’s degree in finance, and completed formal training in negotiation and mediation from Harvard University, MIT, Northwestern University (Chicago, Illinois campus), the NJ Association of Professional Mediators, the Institute for Continuing Legal Education, the Academy of Professional Family Mediators and the Institute for Divorce Financial Analysis. As a child, Joe witnessed first-hand the damage of attorney-driven litigation during his parents' divorce. In 2008, he set out to offer divorcing couples a more peaceful and dignified alternative. Throughout his professional career, Joe has helped over a thousand couples reach a fair and equitable divorce agreement - out of court.