Getting Married (or Divorced): Some Financial Guidelines

For young couples starting their lives together, it’s important to establish a solid financial foundation. Key areas of focus include life insurance, property ownership, and money management.

Life Insurance

A general rule for life insurance is to ensure sufficient coverage to maintain your family’s income level in the event of a death. If you’re the primary earner or plan to start a family soon, consider purchasing life insurance to protect your loved ones.

Related Guide: Please see the Financial Guide: LIFE INSURANCE: How Much And What Kind To Buy

Property Ownership

If you plan to buy property or already own one together, think carefully about how it will be held—solely by one spouse or jointly. Each option has legal and financial implications, so consulting a legal advisor is recommended to determine the best approach.

Money Management

Managing day-to-day finances is crucial. Discuss your financial goals, resolve spending differences, and create a budget or savings plan. You may want to decide between having joint, separate, or a combination of bank accounts. Also, consider setting boundaries for expenses like vacations, groceries, entertainment, and personal items. Defining your long-term financial goals will help guide your spending and saving decisions.

Now is an ideal time to create a financial plan if you don’t have one, or to review and update an existing plan to reflect your new marital status.

Related Guide: Please see the Financial Guide: YOUR FINANCIAL PLAN: Getting Started on A Secure Future

When considering divorce, it’s essential to plan for the financial dissolution of your marriage. This process involves dividing assets and, if you have children, arranging financial support for the custodial parent. Although it may not feel urgent, preparing financially can ease the transition.

Assess Your Financial Situation

Start by evaluating your finances to:

1. Provide a preliminary overview for dividing property.
2. Determine how to handle any marital debt, including credit card balances or loans.

It’s ideal to settle joint debts before the divorce. If that’s not possible, list your debts to establish a fair repayment agreement.

Create an inventory of your financial assets, including:

• Bank balances, brokerage accounts, and investments (IRAs included)
• Property ownership, vehicles, and valuable items (antiques, jewelry, collectibles)
• Tax returns from the past two to three years
• Income records for both spouses
• Insurance policies (life, health, auto, and homeowners) and retirement benefits
• A list of all debts, including auto loans, mortgage, credit card debt, and other liabilities

If you haven’t been working outside the home, consider opening a separate bank account and applying for a credit card in your name to build a personal credit history.

Related Guide: For a system that makes it easy to organize and locate your records, please see the Financial Guide: DOCUMENT LOCATOR SYSTEM: A Handy Aid For Keeping Track Of Your Records

Estimate Your Post-Divorce Living Expenses

Understanding your future expenses is essential, especially if you plan to keep the family home. List all monthly costs, including rent or mortgage, and compare them with your after-tax income. The difference represents your disposable income.

Related Guide: Please see the Financial Guide: BUDGETING: How To Prepare A Workable Plan

Cancel All Joint Accounts

As soon as possible, cancel all joint accounts. Creditors can seek payment from either account holder, regardless of who incurred the charges. Keeping joint accounts open may lead to financial complications and damage your credit if payments aren’t made on time. If an account requires immediate balance payment upon closure, try negotiating with the creditor to transfer the balance to individual accounts.

Protect Your Credit if Your Spouse’s Credit is Poor

If your spouse’s credit negatively affects yours, the Equal Credit Opportunity Act may allow you to separate your credit records. Proving that certain debts or accounts reflect your spouse’s credit alone can be challenging, so be persistent if needed.

Women: Maintain Your Credit Independence

For women, keeping credit in your own name before divorce is beneficial. If you’ve been using only your spouse’s name, start using your own. Check your credit report to ensure shared accounts are listed under both names. Inaccuracies should be reported to the credit bureau for correction.

Related Guide: Please see the Financial Guide: CREDIT REPORTS: What You Should Know-And Do-About Yours.

Build Your Credit History

If you’ve been sharing your spouse’s accounts, ask the creditors to report these in both names. Applying for a secured credit card can also help establish credit in your name, making future applications for credit easier.

Consider Legal Matters

The legal aspects of divorce—such as child custody, property division, and support payments—are often more manageable if you and your spouse can reach an agreement. This reduces the need for costly legal intervention.

For handling the legal process:

1. Hire a lawyer if significant issues like child custody or substantial assets are involved.
2. Update your life, health, and auto insurance policies as part of the divorce agreement.
3. Change beneficiaries on insurance policies, retirement accounts, and pension plans.
4. Update your will to reflect your new circumstances.

If you need support in negotiations, a divorce mediator may be a helpful alternative to attorneys. Friends, relatives, or professional organizations like the Association for Conflict Resolution can provide recommendations.

Division of Property

Property division laws vary by state, and judges often have discretion in applying them. Consider the following:

• Understand your state’s property division laws.
• Gather documentation for any property held separately during the marriage.
• Be prepared to show contributions to the marriage, whether financial or non-financial.
• Document any need for alimony or child support, especially if you haven’t worked outside the home, and consider requesting training funds in the divorce decree for re-entering the workforce.

By planning carefully, you can navigate the financial and legal aspects of divorce more effectively and set yourself up for a stable future.

When planning to remarry, consider the following key factors:

1. Property Ownership: Decide if any property acquired before the marriage will be held jointly or separately.
2. Providing for Children from Previous Marriages: Ensure you have arrangements, such as trusts or life insurance, to secure their inheritance.
3. Prenuptial Agreement: If needed, consider a prenuptial agreement to clarify financial arrangements and protect your assets.

If either spouse has substantial assets, consult an attorney for guidance.

Also, remember to update your will before remarrying. This ensures your assets are distributed according to your wishes, supporting both your new spouse and any children from previous marriages.

• • American Academy of Matrimonial Lawyers (AAML)
    150 North Michigan Ave., Suite 1420
    Chicago, IL 60601
    Tel. 312-263-6477
    www.aaml.org
    
  • Association for Conflict Resolution (ACR)
    12100 Sunset Hills Rd., Suite #130
    Reston, VA 20190
    Tel. 703.234.4141
    www.acrnet.org

• • National Foundation for Credit Counseling (NFCC)
    Tel. 800-388-CCCS (2227)
    www.nfcc.org
    

• Ex-Partners of Servicemen/women for Equality (EX-POSE)
  P.O. Box 11191
  Alexandria, VA 22312
  Tel. 703-255-2917
  www.ex-pose.org
  This non-profit organization provides information to divorcing or separating spouses of military service people.