The Financial Considerations of a Divorce or Separation

Don't get caught of guard with your finances with a break up.

Breaking up is hard to do, and the end of a relationship can be an emotional and traumatic time. You may feel anxious or overwhelmed about such a big change in your life. A divorce or separation may also wreak havoc on your finances.

Be kind to yourself and ask for support if you need it. Start by sorting out the immediate things, and work your way up to tackle the longer term money issues. Take one step at a time, and your confidence and financial knowledge will grow.

• First steps when you separate
• Adjusting to a change in income
• Getting help when you separate
• Organizing your will, insurance and retirement
• Taking care of children during separation or divorce

First steps when you separate

If your former partner was the one who took care of the money, you will need to find out how finances were organized and decide how you want to manage your finances. Focus on setting yourself up for the future. Here are some things you can do to protect your finances:

• Close off your joint accounts. Talk to your bank to establish your own account with your own pool of money, and make sure the other joint account holder can't access it. Check that your pay is going into this account.
• Do a financial assessment. List all your assets and any debts or joint debts in your name.
• Research residency requirements. Most states require a residency of at least six months before you can apply for divorce.
• Update your rental agreement and utility bills. If your name is on the lease or the account, then you are liable for any unpaid rent or damage and any unpaid bill.
• Seek legal advice. Speak to a solicitor about separating property held in joint names, taking legal action, if property is held in your partner's name, to prevent it being sold before the property settlement, and to update your will. Hire an attorney trained to handle bargaining a plan for child support, alimony, custody and property division. In situations with no children, little property or spouses who agree on the divorce, divorce may be handled in a local court with minimum paperwork or money.

Adjusting to a change in income

Your income and expenses are likely to change when a relationship ends. It's more important than ever to make sure you have a good idea of where your money comes from and where it goes. Here are two important steps to get started.

1. Create a new budget

Make a budget based on your changed income and expenses. Start by writing down all your income and expenses. Then work out what is essential and what could be cut. Saving a few extra dollars each week can add up to a big difference over time. For urgent help to sort out your bills and create a budget, consider meeting with a financial counselor.

2. Gather your financial information

If you're not used to managing your money, getting all your key financial documents together is an important first step. Find and organize your:

• Savings and transaction account statements
• Utility bills (e.g. electricity, gas, mobile and internet)
• Credit and store cards bills
• Property paperwork (deeds, mortgage papers, home loan details)
• Investment paperwork (managed fund statements, share dividend statements)
• Tax records (tax returns and tax file numbers)
• Insurance policies (e.g. health, home, car, disability and life)
• Retirement accounts or pension plans (both yours and your ex-partners)
• Will and estate plans
• Contact information for your accountant and lawyer

Getting help when you separate

Depending on your financial situation, you may be able to receive free or low-cost legal aid. Civil Legal aid is free legal assistance to low- and middle-income people with civil legal problems and is offered through the Department of Justice. You may also be able to get help through a pro bono program, a law school clinic or a courthouse facilitator.

Now that you are a single-income household, you may need some financial help. Consider these programs: Temporary Assistance for Needy Families, a monthly cash assistance program for families with children younger than 18; the Food Stamp program, which helps to pay for the cost of food; or Medicaid, which provides health care services.

Organizing your will, insurance and retirement

Think about updating your will to reflect the changes in your life. Most states consider a divorce an action that revokes any assets given to an ex-spouse, but it’s better and easier in the long run to create a new will that names your beneficiaries, an executor and a guardian if you have children.

Review your insurance policies including car, home and life, especially if you have children, to make sure they provide the level of coverage you need. You might already have disability and life insurance through your retirement plan, but your divorce decree may order you to keep your ex-spouse on your disability and life insurance plans.

Retirement savings are one of the largest and most valuable assets many people own and play a role in divorce proceedings. If your ex-spouse has an employer-sponsored retirement plan, like a 401(k) or pension, you’re legally entitled to part of that balance unless you have a prenuptial agreement. This means your ex-spouse is also entitled to this money if you have these plans.

The elderly poverty rate is almost two-thirds higher among women than men with 12% of women in poverty compared with 7% of men. Widowed, divorced and never married women are more likely than unmarried men to be poor, according to the Social Security Administration.

Getting your retirement plan sorted after your relationship ends is an important step in planning for your future. Take stock of where you currently are, and determine how much of a shortfall exists between your current savings rate and your retirement goal. Take longevity into account when you plan and start saving for medical care. Think about Social Security benefits, because if you were married for 10 years or longer, you may be eligible to receive benefits based on your ex-spouse’s earnings.

Taking care of children during separation and divorce

If you and your former partner are separating and have children, you'll have to agree on arrangements for their care. Child support varies state-by-state, with their own guidelines for determining child support. States usually follow one of three models: the Incomes Shares Model, the Percentage of Income Model or the Melson Formula model. Income Shares Model means minor children should receive the same amount of parental income they would if the parents lived together. This is the most common model, with 40 states using it. With the Percentage of Income Model, support is calculated as a percentage of the noncustodial parent’s income, and seven states use this method. The Melson Formula is a version of the Income Shares Model designed to ensure each parent’s basic needs are met as well as the children’s. Only three states use this.

Family breakdown can be an especially difficult time for children, so make sure you talk to them openly, answer their questions honestly and, where appropriate, involve them in the decisions that affect them.