One of the main goals of every divorce is to create two financially and otherwise separate individuals. Financial independence is the inevitable result of all divorces.
If you are not completely sure that you want a divorce, but you are contemplating one, I recommend you to do the following:
First, write a budget. You need to know how much you spend on necessities of life and how much you make. If your income is low right now, you need to know how much money you will need to live independently from your spouse.
A realistic budget will help to determine amount of spousal maintenance that a low-income spouse may be entitled to. It is necessary to remember that in Washington State judges do not use a formula when they determine amount of spousal maintenance. They look at financial situation of both parties, at their realistic needs (budgets) and financial abilities.
In cases, where both spouses have income, budgets help to plan for their financial future. When writing it, I recommend to start with figuring out your living arrangements (rent or live in the current family house).
If you want to stay in the house, you need to find out if you can refinance it in your name only. Sometimes people want to stay in the house, but cannot really afford to pay mortgage and are not eligible for refinancing the house in their only name.
If you intend to rent, you need to know how much that rent will be.
Second, figure out if you have any credit history. You should check your credit score. A good credit score is crucial for your financial future. It will help you to rent an apartment (if necessary), get a credit card, or refinance mortgage in your name only.
Third, open one or two credit cards in your name only. That way your spouse will not have a chance to cancel your credit cards without your permission. Also paying off credit cards will help you to raise your credit score.
Fourth, get following financial documents:
- Tax returns for the last 5 years with all schedules and W-2s.
- Paystubs for the last year, if possible. You should get your paystubs and your spouse’s paystubs. However, this items might not be accessible to you.
- Bank statements from all bank accounts, including checking, savings, investments, retirement accounts.
- Insurance statements and explanation of benefits from all employers.
- Credit card statements, mortgages and other loans statements for the last year. Other information about debt.
- Wills and/or Trusts
- All written agreements.
Finally, figure out what property and debt you and your spouse have at the moment. At first write a list of the property and liabilities that you and your spouse have. Once you have compiled the list, you should start gathering financial documents including:
- Real property – deeds, escrow papers, mortgage balances, monthly payments of the mortgage, tax property assessment information. You can even schedule an assessment of the property to see currently market price of it. Please note, Zillow.com is not very reliable when it comes to assessment of the market price but it gives an working estimate.
- Cars, boats, other motor vehicles – registration slips, titles, loan documentation.
- Pension plans, 401K, other retirement accounts – you will need copies of all financial statements available.
Normally there is no need to compile a list of household items, unless they are very valuable. In that case, it is best to take pictures (with dates on the pictures) of those items.
Once you are ready to file for divorce or your spouse have filed for divorce:
Open a different account in your name only and preferably in a different bank that your current bank accounts.
After you open that account, you should transfer your most recent paycheck to that account and set up payments to go to your separate account.
If you are afraid your spouse will close access to the finances after you inform them about your intent to file for divorce, transfer some funds to your new account.
If you consider your spouse to be reasonable, discuss the matter of divorce first. It is essential that you bring up the issue of money. You should have some sort of an agreement on how much money you can transfer to your new account for your living/moving expenses and to hire an attorney, should you decide to retain one.
Talk to a CPA about your taxes and how to minimize them. Taxation is the second largest financial setback endured during the divorce. People with larger income might end up paying additional taxes after the divorce is finalized. Talking to a CPA might help you to avoid additional tax burden.
III. Things to avoid doing
First, do not close accounts, move assets from one account to another, or make other financial changes. All activity that is out of the ordinary should be avoided as it could give the appearance you are trying to hide funds.
Second, do not pay off community debt. Keep making payments as usual. All community debt will be divided between you and your spouse. If you pay it off now, you will not be able to ask for reimbursement of those payments later.
I have created a Budget form and Property and Liabilities Checklist. If you want those documents, please email me at email@example.com and I will give them to you free of charge.