Financial Planning for a Divorce

Death, disability, and divorce are three common life events that impact personal finances. Divorce is the only one that cannot be provided for in advance with some type of insurance. What to do? Consider these seven action steps:

¨      Learn the Local Laws- Determine if the divorce will be filed in a community property state or the majority of states with an equitable distribution approach where property acquired during a marriage in either or both spouse’s name (except gifts and inheritances) is considered a marital asset subject to division in a property settlement agreement.


¨      Prepare a Net Worth Statement– Tally up assets minus debts (net worth) because an attorney and the courts will request a complete accounting of a couple’s separate and joint property.


¨      Do Some Math– Consider carefully whether either spouse can afford to keep the family home following divorce, especially if it took two paychecks to qualify for the mortgage.


¨      Protect a Good Credit History- Close joint credit accounts with an ex-spouse. Also request duplicate statements from creditors if you have doubts that an ex-spouse will make payments on jointly-held debts as per a divorce decree.


¨      Prepare to Live on Less-Develop a realistic post-divorce budget that may involve “downsizing” from your previous lifestyle as part of a married couple. Do not attempt to try to live beyond your means using payday loans or credit.


¨      Review Insurance Coverage– Make sure that the spouse(s) paying alimony and/or child support have adequate life and disability insurance so that payments will continue no matter what.


¨      Consider Retirement Plan Distributions-Make arrangements to share spousal benefits earned by a worker during a marriage with a Qualified Domestic Relations Order (QDRO). This is a court-ordered document that tells the retirement plan administrator how to divide benefits between divorcing spouses.

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