Learn Something
How to Prepare Financially for Divorce: 10 Steps to Protect Your Future
Divorce is one of those life events that most people never expect to happen to them.
Over the past few years, I’ve watched several women in the personal finance community go through divorces. These are smart, financially savvy women who teach budgeting, investing, and debt payoff for a living. If divorce can happen to people who spend every day talking about money, it can happen to anyone.
That’s one of the reasons I wanted to write this article.
If you’re considering divorce, or you think it’s a possibility in the near future, the emotional side of things will naturally take center stage. But while you’re dealing with difficult conversations, uncertainty, and stress, don’t ignore your finances.
Preparing financially doesn’t mean you’ve given up on your marriage. It means you’re protecting yourself and your future no matter what happens. Because remember the old saying, the person who you marry is not the person who you divorce. The spouse you knew might be a completely different person during divorce proceedings.
Here are some steps to take before filing for divorce.
1. Get a Clear Picture of Your Household Finances
Many couples divide financial responsibilities. One person pays the bills while the other handles investments. One spouse manages the checking account while the other focuses on retirement planning. Or maybe one person handles all of the household finances while the other handles other items.
The problem is that if you’ve never been involved in certain areas of your household finances, you may not know exactly where you stand.
Start by making a list of:
- Bank accounts
- Credit cards
- Retirement accounts
- Investment accounts
- Mortgages
- Auto loans
- Student loans
- Insurance policies
- Monthly bills
Your goal isn’t to become an expert overnight. You simply need to understand what exists and whose name is attached to each account or even who has access to these accounts.
2. Start Tracking Your Expenses
One of the biggest financial mistakes people make during divorce is underestimating what life will cost afterward.
Review the last 12 months of spending and look at:
- Housing costs
- Utilities
- Groceries
- Childcare
- Transportation
- Medical expenses
- Insurance
- Entertainment
- Debt payments
Don’t forget expenses that only show up occasionally, such as:
- Vacations
- Holiday spending
- Back-to-school costs
- Home repairs
- Vehicle maintenance
Knowing where your money goes today will help you create a realistic post-divorce budget tomorrow.
3. Gather Financial Documents Before You Need Them
This step is especially important if your spouse typically handles the finances.
Gather copies of:
- Tax returns from the past three years
- Pay stubs
- Bank statements
- Credit card statements
- Retirement account statements
- Investment account statements
- Mortgage documents
- Vehicle loan information
- Insurance policies
Store digital copies in a secure location that only you can access. The goal isn’t secrecy. The goal is preparedness.
4. Check Your Credit
Many women are surprised to discover they have little or no credit history in their own name. If you’ve primarily used joint accounts throughout your marriage, now is the time to understand your credit profile.
Pull your credit reports and review:
- Open accounts
- Joint debt
- Credit card balances
- Payment history
- Errors or fraudulent accounts
Your credit score may play a major role in your ability to rent an apartment, refinance a mortgage, purchase a vehicle, or qualify for new credit after the divorce.
5. Understand What Happens to Retirement Accounts
For many couples, retirement accounts are among the largest assets they’ll divide. On the Human Resources side, I’ve been at the receiving end of many divorce decrees and court orders that spelled out how to divide retirement assets. This is one area where costly mistakes can happen.
Accounts that may be subject to division include:
- 401(k)s
- 403(b)s
- Pensions
- Traditional IRAs
- Roth IRAs
Many employer-sponsored retirement plans require a Qualified Domestic Relations Order (QDRO) before assets can be divided properly. I recall reaching out to an employee’s ex who was to receive 50% of the account balance. She had no idea how much was actually in the account. The important thing to understand is that retirement accounts aren’t just numbers on paper. Taxes, penalties, and future growth all matter.
Before agreeing to any settlement involving retirement assets, make sure you fully understand what you’re receiving and what it will actually be worth in the future.
6. Think Carefully Before Fighting to Keep the House
Many people assume they should keep the family home after divorce. Sometimes that’s the right choice. Sometimes it’s the most expensive mistake they can make. I know one person whose spouse was to sell or refinance the home as a part of the divorce decree. Eight years later, the house still has not been sold and he’s still on the mortgage because she can’t afford to refinance the property.
A home comes with ongoing costs such as:
- Mortgage payments
- Property taxes
- Homeowners insurance
- Repairs
- Maintenance
- Utilities
Before deciding to keep the house, ask yourself whether you can comfortably afford all of those expenses on your own. Remember: a house can be an asset, but it can also become an expensive financial burden.
7. Pay Attention to Insurance
One of the most overlooked financial issues during divorce is insurance.
Ask yourself:
- Are you covered by your spouse’s employer plan?
- Will you need your own health insurance and how much will it cost?
- Will auto insurance policies need to be updated?
These details can easily fall through the cracks during an emotional time.
8. Avoid Making Emotional Money Decisions
Divorce can bring out a lot of fear and anger. Unfortunately, those emotions can lead to poor financial decisions.
Avoid:
- Draining joint accounts without legal guidance
- Taking on unnecessary debt
- Making large purchases
- Cashing out retirement accounts
- Crashing out (as young people say) publicly against your soon-to-be ex
- Hiding assets
Every financial decision you make during this period should support your long-term stability.
9. Create a Post-Divorce Budget
Even if the divorce isn’t final, start planning for your future finances now.
Estimate your expected:
- Housing costs
- Utilities
- Food expenses
- Childcare costs
- Transportation
- Insurance
- Debt payments
- Savings goals
Many people find that creating a post-divorce budget reduces anxiety because it replaces uncertainty with a plan.
10. Build an Emergency Fund if Possible
Divorce often comes with unexpected expenses. Legal fees. Moving expenses. Deposits. New furniture. Childcare adjustments. Having even a small emergency fund can make the transition easier. If you don’t already have one, start setting aside money now.
Final Thoughts
Divorce is emotional. It’s stressful. It can be very expensive, and it can feel overwhelming. But this is also a time when understanding your finances matters more than ever.
You don’t have to know everything overnight. Start by gathering information, understanding your financial situation, and creating a plan for the future. The goal isn’t just to get through the divorce. The goal is to put yourself in a position to build financial stability and confidence in the years that follow.
