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Separation and Divorce Financial Planning



Planning for the future is an inevitable component of a divorcing couple's settlement. Couples separating or divorcing confront significant changes in their lives, including in financial aspects. What used to be one household operating on the incomes available to the couple now becomes two households.

Having ready access to accurate and reliable financial data assists a couple engaged in the turmoil of divorce to accomplish a reasonable and appropriate settlement more readily. Of course, with any new divorce settlement, there are likely to be some required modifications to lifestyle and living standards.

A financial planner can assist divorcing spouses in navigating this process, in coordination with the assistance of legal counsel. However, a financial planner is not necessarily required if parties are prepared, organized, and sophisticated enough to tackle their financial affairs independently.

Practical Steps Toward Financial Separation

There are a number of recommended financial planning steps that separating or divorcing couples should undertake as early in their divorce process as possible, ideally well before volatile emotions and tempers obscure the parties' planning focus and rationality:

  • Obtain credit in your own separate names if not previously done.
  • Obtain copies of all current financial documents and statements from banks, investments, retirement, and so on.
  • Compile copies of at least the last three years of filed tax returns.
  • Compile three to five years of bank statements.
  • Order an individual credit report from an official credit reporting bureau or a consolidated credit report from the three major bureaus: Equifax, Experian, and Trans Union.
  • Compile medical histories, records, and chart information, including physician reports, medications, prescribed treatment, and chronologies, especially if there are specialized medical issues that require addressing in the near future.
  • Change the title of the marital home to joint tenants in common from tenants by the entirety or joint tenants with rights of survivorship.
  • Change the beneficiary on wills and any other financial instrument if it is currently the spouse.

It is also important for divorcing spouses to recognize that when the marital assets are divided between them, the division may not necessarily be a literally equal one under the principles of equitable distribution. For example, premarital assets of either party and any inheritance gifts that are not commingled or administered by the non-recipient spouse will remain assets set apart from and outside of the pool of marital assets to be distributed. In addition, marital assets, joint assets, assets that the couple acquires during marriage, and assets (investments, businesses, qualified retirement, IRA, or pension plans, and real estate) of one spouse with increased values during the marriage due to the efforts of the other spouse are reviewed and evaluated as part of the equitable distribution process.