If divorce is on the horizon, your financial life may soon change. While many financial tasks are universal, some topics seem to be more applicable to women. Especially for those coming from traditional heterosexual marriages, it’s not uncommon for women to have taken a break for caregiving, which can affect long-term financial goals like retirement.
The tips below can help women prepare for life after divorce and keep financial goals on track. While other aspects of your life are also important, we want you to keep a strong financial foundation to help you manage everything else.
Get Accounts in Your Name
It’s critical to have bank and credit card accounts in your name going forward. You might keep joint accounts as you finalize the divorce, but the goal is to have everything separate as soon as possible. In addition to helping you make a clean break, this protects you financially.
Bank accounts: If you don’t already have individual checking and savings accounts, open them now. The sooner you do so, the sooner you can set up direct deposit of earnings into those accounts. Plus, an individual account provides privacy and protection. Your spouse can’t see where you’re spending money or how much you’re spending, and only you can authorize spending from that account.
Credit cards: It’s also helpful to have your own credit cards for spending. Credit cards make it easy to spend with a grace period, and they offer consumer protection when fraud occurs. Having your own accounts helps you maintain your credit score, which is important if you’ll ever borrow for a vehicle or home purchase. Opening new accounts can ding your scores, so consider hesitating if a home loan is imminent, but you’ll need your own card at some point.
Close joint accounts: Close joint accounts with your soon-to-be ex-spouse as soon as it’s feasible, and ask your legal advisor for tips on when is ideal. Sharing expenses can be complicated when you’re married, and it doesn’t get easier when you’re about to divorce. Plus, you don’t want to be responsible for your ex-spouse’s spending. If your name is on a credit card or an overdrawn bank account, you’re responsible for any charges—even if you didn’t spend the money.
Debt and Divorce
Divorce does not automatically split debts. Any loans you took out with your spouse jointly are still your responsibility. That’s the case even if the divorce decree says otherwise. Yes, your ex will be legally required to cover the debts, but lenders still have an agreement with you—and that doesn’t change when you divorce.
Refinance, Pay Off, or Change Loans
If a loan has your name on it, you’re often 100% liable for it. It doesn’t matter what the divorce decree says. If a lender thinks you can repay, the lender can take legal action against you to collect.
To remedy this, it’s critical to get any debts out of your name if you’re not the one responsible for paying. That often means refinancing and getting a new loan in your ex’s name only. Unfortunately, that may require that your ex qualifies for a new loan with a single income (and whatever their credit score happens to be).
Alternatively, you can pay off debts, which may be a challenge. While you might want to keep a home or keep assets intact, it might be worth taking drastic measures to pay off loans if you can protect your credit.
State Laws Vary
Depending on where you live, things could be complicated. That’s why it’s critical to ask an attorney licensed in your state how to handle loans (and other aspects of an upcoming divorce).
Don’t Ignore Retirement Benefits
You might qualify for retirement income benefits as a result of your years of marriage. This can be especially helpful for a parent who stayed at home for caregiving. Here are three tips for funding retirement after divorce.
Social Security
Social Security’s rules are fairly clear on divorce. If you were married for at least 10 years, you may qualify for retirement benefits based on your spouse’s earnings record. There are complications and exceptions, but as an overview:
- You were married for at least 10 years
- You are unmarried when claiming benefits on your ex-spouse’s record
- You are 62 or older
That’s good news for anybody who was married to a high-earning spouse. You typically get the better income—the higher of your benefit or your ex-spouse’s—when you use this strategy.
If you were the higher earner, don’t be alarmed by your ex claiming benefits on your work record. Your income will not be reduced by any benefits they get under your record.
Keep in mind that you might also qualify for a survivor benefit if your ex-spouse passes away.
Pension Income
If your spouse gets pension income from an employer (or will receive income in the future), you may be entitled to a portion of that income. Discuss this with your attorney, as this is not automatic like Social Security’s rules. Instead, this would be a legal decision determined with input from your ex and the courts. For example, stay at home moms might argue that their hard work provided economic benefits to the household, even though there was no income during that time.
Lump-Sum Amounts
It’s also possible to get a portion of an ex-spouse’s retirement accounts. Instead of receiving a portion of monthly income payments, you would get a lump sum payment to help you fund retirement savings.
For example, your spouse might have assets in 401(k), 403(b), TSP, or other retirement plans. When handled properly, a Qualified Domestic Relations Order (QDRO) may enable you to receive funds from those accounts without triggering tax consequences for you or your ex-spouse. Again, this is an area that your attorney should be involved with. Then, the retirement plan administrators handle the logistics of distributing money.
Retirement is critical for women. With traditional marriages, in particular, women may be at a disadvantage compared to men as a result of the wage gap, caregiving, and other factors. As a result, it’s important to neutralize those differences when you split.
Get Legal Help
You’re a smart person. But this is a difficult experience, and it may be emotionally taxing. You’ve got complicated financial and legal waters to navigate, and we know that our cognitive ability suffers when we’re under significant stress. This is important stuff, and it’s too easy to make an expensive mistake.
Unless you’ve been through divorce more than a handful of times, it’s best to enlist the help of an attorney. Be sure to work with somebody who you’re comfortable with, and who is genuinely interested in helping you get through this experience in the way that’s right for you. In some cases, that means finding an aggressive advocate. In other situations, you may just want somebody skilled and caring who can help you and your ex end the marriage in a way that feels right for everybody.
Getting professional financial advice for divorce and legal help can make the process go smoothly, and you might improve the chances of having a more secure future.
Financial Basics
If you combined your finances with your spouse, you’ll be managing everything separately after divorce. To make that transition as easy as possible, make a plan for how you’ll pay for everything.
Know your net worth: Start with a high-level overview of how much you have in assets, including your interest in real estate, automobiles, cash, investment accounts, and more. Then, subtract any debts you’re responsible for (this can be problematic—more on that below). The result is your net worth, which can be a helpful measure of your financial health.
Any cash or investment accounts may be helpful as you transition to life without your ex. You might use funds for a down payment on a house, or for rental and deposit payments.
Understand your income: Get familiar with how much you can expect to receive each month (and annually). Whether you get income from work, Social Security, or investments, this step tells you what financial resources you have available.
It’s also critical to understand if you have steady income from a stable source, or if your income is irregular, as it is for some business owners. Review tax returns from previous years to understand your household’s income, and compare that to what you might expect to earn individually. This information is important to discuss with your attorney.
Get spending details: Estimate how much you’ll spend in the future on housing, food, utilities, retirement savings, recreation, clothing, vacations, and other important categories. You need to know how this compares to your income. Again, it’s helpful to review historic spending patterns and to evaluate how things might change after divorce.
Make a plan: Once you know where you stand, you have a realistic idea of what steps you can take toward goals like retirement, home ownership, and more.
And Everything Else
As you’re already aware, there are numerous areas of your life that may change. You may have children that you need to communicate with, and you may be juggling a lot of other balls at the moment. It’s all important, so take some time to manage your energy and practice self-care as you navigate these waters.