Facing Financial Demons During Divorce and Legal Separation

Facing Financial Demons During Divorce and Legal Separation

Divorce and legal separation involve the unraveling of a couple's intertwined living situation, affairs and finances. Given the delicate and emotional nature of divorce, the parties involved often feel so overwhelmed that they make careless or rash financial decisions that will detrimentally impact their future as single individuals. Understanding the common mistakes that divorcing couples make can help those currently going through the divorce process to avoid the same pitfalls.

The Big Financial Picture

Generally the longer a union lasts, the more closely and more complicated a couple's finances become knit together. Unknotting those financial links is therefore exponentially more challenging given the length of time that a couple has been together. When a union has lasted more than a few years, it can be difficult to clearly understand what separating assets and finances will mean practically for the newly single parties.

The first priority in examining a couple's joint finances is determining the big financial picture by asking the following general questions:

  • What do we own?
  • What do we owe?
  • How do we spend money?

Adequately estimating how much money is coming in versus how much it costs to live every month is especially important, as it will not only affect how the rest of the finances are approached, but it will also indicate the extent to which the newly single parties' financial situations will differ from that in the marriage. Financial planners consistently warn newly single people to adjust their financial expectations of life after divorce, because separating income and assets necessarily means that each party will feel a squeeze not felt when their home was supported by two individuals.

The Family Home

The decision to keep or sell the family home is an emotional one. Often couple's opt to hold onto the house for the legitimate reasons of comfort and security or for the benefit of the children. However, refusing to sell the family home may be a disastrous decision if the person who chooses to remain in the house cannot afford it. Consideration must be given to whether the mortgage, taxes, insurance and upkeep can be realistically managed by a single person.

Dividing Assets

Asset division is often the most complex issue that separating couples face. All assets are not equal, in that devaluation, tax and liquidity issues, issues of business and degree are all factors that may influence an asset's value beyond its current market value. Only an accountant and an attorney can adequately explain and advise a couple on the complexities of asset division.

Separating Debt

Joint debt versus separate debt is often a legal question and only an experienced attorney can properly advise a couple on what debt must be divided and how. Yet, it is a good idea to keep the following things in mind when approaching the harrowing task of separating debt:

  • It is important to begin by ordering a credit report from each of the three credit bureaus: Experian, Equifax and TransUnion, which will indicate your loan, credit card and mortgage debt. The results may be surprising
  • Determine which credit card accounts are held jointly and which are held separately. Joint accounts will need to be separated according to the company's terms
  • Be aware that creditors are not bound to the terms of a divorce agreement and that they may seek repayment of any jointly held debt from either party

Estate Planning

As soon as the court will allow, it is important to change the beneficiary names on wills, powers of attorney, life insurance and retirement accounts.


The determination of whether support will be counted as spousal or child support bears significant tax consequences. It is important to discuss these with your accountant and attorney. Other tax considerations include who will file as head of household and who will claim any children of the union on income tax forms.

Moving Forward Before You Move On

If you are a woman who will be reclaiming your original last name, make sure to announce this decision to all creditors, employers, health care providers, etc. Not informing interested persons immediately could affect your finances.

Consider opening new individual bank accounts and credit cards before the marriage is terminated, as it can be more difficult to obtain credit once you are single. It is also important to guard yourself against unexpected bad faith credit purchases or bank account withdrawals by your partner.

If you have not been a member of the workforce in some time, make sure that your financial outlook includes the considerations that must be made as you re-enter the workforce or obtain additional education.

Expecting the Unexpected

In life, the unexpected often occurs. It is important to adequately plan for the "unexpected." If spousal or child support payments cannot be made due to death, illness, injury or bad faith, what financial security do you and your children have? In addition to contemplating these questions, it is important to maintain healthcare, life, disability and homeowner's insurance to guard against the expected in innumerable situations.

For Further Reference

Financial issues that must be addressed during a divorce or legal separation are often surprisingly complex. If you are involved in divorce or separation proceedings, please contact an experienced attorney for guidance.