Before the attorneys and judges look into every aspect of your financial life, it’s important to prep your finances for divorce. With the right preparation, you reduce the risk of your spouse racking up debt in your name and trashing your credit score, and help the process go a little more smoothly.
Once you file for divorce, there is an Automatic Restraining Order on your finances. Except in limited circumstances, you cannot sell or dissipate joint assets, incur further debts, or modify your spouse’s or child(ren)’s insurance coverage. This is why it’s important to prepare before anyone files for divorce.
Here are 5 crucial steps to prep your finances for divorce:
1. Open Individual Bank Accounts and a Credit Card
Open your own checking and savings accounts, and have your paychecks directly deposited into those accounts. Continue to pay the joint household expenses, particularly if they are tied to your credit, but save the leftover funds in your own account. This will help you with individual expenses like a security deposit on your own apartment, a retainer payment to your attorney, etc.
In addition to the convenience of having your own credit card, it will boost your credit score to make on-time payments on your own, individual, credit card.
2. Close Joint Credit Card Accounts
I’ve seen it happen many times: One spouse continues to rack up credit card debt in both parties’ names, and refuses to pay it down or pay it at all. Even though it violates the Automatic Restraining Order, it’s hard to enforce if the couple has limited financial resources. If you can close your joint credit cards prior to filing for divorce, you will avoid this problem. All joint credit cards will have to be closed by the conclusion of the divorce anyway, so you are accelerating the inevitable and avoiding a common problem.
3. Obtain Online Access to All of Your Finances
Parties have to report the current balance of their bank, retirement, and investment accounts, as well as credit cards, mortgages, and other debts. If you have online access, you will be able to easily update that information every time you need to report them. Check out the court’s Financial Statement forms, to see what information you will need to know. They are available here: Massachusetts Financial Statements. on a Financial Statement.
In addition to learning your balances, online access will help you gather all the necessary financial statements you will need. In Massachusetts, parties have to gather three years of bank, retirement account, and investment account statements. The complete list can be found here: Rule 410 Documents.
4. Start Tracking your Income, Expenses, and Assets
Get a handle on your budget before you start living on your own. Not only is this required for the Financial Statements, it will help you make decisions when you know whether your income can sustain your lifestyle, in addition to any support payments you may receive or you may have to pay.
Several commercial products can help you get a handle on your finances and monitor them: Mint.com and You Need a Budget are the leading products. You can also try my simple Excel sheet to set up a budget, though it doesn’t automatically update your balances like the more sophisticated online products do. Available here: Monthly Balance Sheet
5. Get a Current Copy of your Credit Reports
You can get a copy of your credit report from the three credit reporting agencies for free by using the Annual Credit Report site located here: Annual Credit Report. Each report will show all of your credit cards, mortgages, student loans, and other debts that are reported to credit agencies. If you spot any suspicious debts that your spouse may have taken out in your name, you can place a “fraud alert” on your credit, which prohibits anyone from taking out debt in your name without first verifying that you are the person requesting the debt.
With these preparations in place, you have made it harder for your spouse to violate the Automatic Restraining Order, you’ve made the financial reporting part of divorce easier, and you are setting yourself up for financial success when you’re living on one person’s income.
