Help! I’m getting a divorce and I’m broke
Divorce and financial challenges go hand-in-hand for many people. Money is frequently cited as a leading cause of divorce, and when that divorce occurs, people find themselves with one income to pay their bills, rather than two. For many, it’s not simply losing the house they love that’s at issue… it’s losing their lifestyle and possibly ending up over their heads in debt.
What steps should you take to protect your finances during divorce? Here are six things to consider.
1. Gather your financial information
Gather all of your financial documents and any of your spouse’s financial documents, including bank account and retirement account information, insurance policies, credit reports, income tax returns and others. Inventory all of your assets and debts so you know how money is being spent now and how much you have as a couple. Pay attention to how both you and your spouse are spending money. Once the divorce is filed, you will not be able to transfer, conceal or dispose of any of your property beyond your normal use.
This financial information will be vital for you and your attorneys to have at hand as you work through property division. You do not want to find out later that your spouse had more in assets than you believed him or her to have. Understand that you may end up sharing some of the accounts in one name only, such as retirement accounts.
2. Open your own accounts
If you only have joint accounts, now is the time to open a checking and savings account in your name. You may also want to apply for a separate credit card.
Start thinking about how you will manage money on your own. Set a budget that works on your salary, and consider what you need to be financially stable. You may wish to see a financial planner.
3. Plan what to do with your home
You and your spouse will need to continue to make payments on your mortgage during your divorce. Discuss whether one of you can keep the home. If one person will stay in the home, the other person will need to be reimbursed, as part of the property settlement, for his or her share. If neither party can keep the home, you will need to sell it and divide the proceeds during your divorce.
4. Avoid a costly courtroom fight
You and your spouse are going to have disagreements during your divorce — that’s the simple truth. Spending years and thousands of dollars fighting in court is not going to make you feel any better or help you move on with your life. As attorneys, we have seen people spend thousands of dollars fighting over property worth mere hundreds. At a time when finances matter, it is important to take a step back, put your emotions aside, and consider your options.
Your divorce does not have to be a courtroom battle. There are other choices — such as mediation — that are much less expensive and quicker. In mediation, a third party neutral (the mediator) will work with you, your spouse and your attorneys to help you come to agreements. You may never need to go to court.
5. If you face overwhelming debt, consider bankruptcy
For those facing burdensome debt, bankruptcy may be a good option to get a fresh financial start. Do not fear bankruptcy — it is not a declaration of failure, but a chance to start anew. Speak with an attorney about your options for filing. Choosing when to file is important. Options include:
- Filing for bankruptcy prior to filing for divorce: By filing a joint bankruptcy with your spouse before divorce, you may save money. You will need to only file one petition together, not two separate petitions. That means one filing fee and one lawyer. Furthermore, by filing before divorce, you will be able to erase much of your marital debt and will not need to divide that debt during your divorce.
- Filing for divorce prior to filing for bankruptcy: There are times when the divorce simply cannot wait. The average Chapter 7 bankruptcy takes three to four months. You may need to file your divorce sooner for court-ordered child support or custody. Furthermore, you may not qualify for Chapter 7 bankruptcy on your dual income. Waiting until you have only one income may make it possible for you to successfully file for Chapter 7.
6. Talk to a lawyer
If you are divorcing and are concerned about your finances, you may have decided to skip hiring an attorney and try your divorce “on your own.” Unless you are sure you and your spouse will easily agree on all of the issues, this could be a dangerous choice. You may end up losing more of the financial battle, particularly if your spouse has a lawyer. Instead, speak with an attorney to learn your options. A lawyer can help guide you through the process, protect your financial interests and refer you to financial resources.