How to Protect Yourself Financially in a Divorce

Divorce can feel like a personal tsunami—sweeping away emotional and financial stability in a single motion. Yet, in the midst of the chaos, there's one truth that every person must hold on to: financial self-preservation is paramount. Money might not buy happiness, but it sure does provide security, especially during such a transformative life event. The key to financial survival is not just cutting costs or liquidating assets—it's strategic planning. How you navigate this will determine the financial future for both you and any dependents you might have.

1. Prioritize securing liquidity

You need money to live, to pay bills, and to keep life moving forward. Without sufficient liquid assets, you can quickly find yourself in a tough spot, especially if the divorce drags on for months or even years. The first step to protecting yourself financially is to ensure you have access to liquid funds.

• Open an individual bank account: If you don't already have one, open a bank account in your name only. This will serve as a repository for funds that you can access freely.
• Separate joint accounts: Consult your attorney about how to appropriately separate funds from joint accounts to avoid being left in a situation where you no longer have access to the cash flow you need.

2. Create a budget—account for every penny

During a divorce, money has a way of vanishing. It's critical that you immediately start tracking your income and expenses. Knowing exactly how much money you have coming in, what your fixed expenses are, and what variable costs you need to control can be life-saving. Budgeting helps you gain clarity on what you can afford to spend, while also preparing you for any unexpected legal or personal costs that may arise.

• Assess your current financial standing: Create a list of all your income sources, assets, liabilities, and obligations.
• Estimate future costs: Think beyond today. What will your lifestyle look like in one year? Five years? Consider legal fees, therapy, children's education, housing, and any possible medical expenses that could arise.

3. Know your legal rights and assets

One of the most important steps in securing your financial future during a divorce is understanding what you own—and what you're entitled to. In many cases, people lose out on assets simply because they didn’t know they had a right to them. Get a full picture of your marital estate, which includes:

• Real estate: Houses, vacation homes, rental properties.
• Retirement accounts: Pensions, 401(k)s, IRAs.
• Investments: Stocks, bonds, mutual funds.
• Businesses: Do you or your spouse have a share in a business?
• Valuables: Jewelry, art, cars, etc.

Consider hiring a financial advisor or divorce financial analyst to help evaluate your entire portfolio. Their job is to make sure nothing is overlooked and that you receive your fair share of the assets.

4. Protect your credit score—don't let it crash

Your credit score is one of your most valuable financial assets, and divorce can be its worst enemy. Divorce often means splitting debts and making new purchases that could strain your credit. It's important to monitor your credit and ensure that bills are paid on time, particularly those from joint accounts that both you and your spouse have access to.

• Keep an eye on joint debt: Make sure that any debts in both your names are paid off or transferred to one individual. This ensures that your credit won't suffer from missed payments or other financial mismanagement.
• Establish credit in your name: If all of your credit accounts were in your spouse's name, now is the time to open a credit card or loan in your name alone to build your own credit history.

5. Prepare for alimony or child support discussions

Negotiating spousal support or child support is one of the most crucial aspects of divorce for many people. Don't assume that the initial offer from your spouse is fair—especially if you're the lower earner or have been financially dependent on your spouse. Consult an attorney to fully understand the laws around alimony and child support in your state and what you're entitled to.

• Gather financial documents: Pay stubs, tax returns, and a comprehensive list of your monthly expenses will help build a strong case.
• Consider mediation: If you and your spouse are willing, mediation can be a faster and less expensive way to settle support payments. But be wary—mediation still requires that you understand the financial picture completely so you're not left short-changed.

6. Consider the tax implications

Divorce changes more than just your relationship status. Your tax situation will also undergo a major shift. Failing to consider tax consequences when dividing assets could result in less money than you expected. Some things to keep in mind:

• Taxable vs. non-taxable income: Alimony payments used to be tax-deductible for the payer and taxable for the recipient, but under the Tax Cuts and Jobs Act, this is no longer the case. Make sure you know whether the support you're receiving will be taxed.
• Capital gains tax: If you sell a house or other investments during the divorce, you'll be responsible for any capital gains taxes owed. Consult a tax professional to see how you can minimize this impact.

7. Update your beneficiaries and estate plan

Once the divorce is finalized, it’s important to update all your legal documents, beneficiaries, and estate plans. This includes life insurance policies, retirement accounts, wills, and trusts. Failing to do so could result in your ex-spouse receiving assets that you no longer want them to have in the event of your death.

• Change beneficiary designations: Go through each policy or account where your spouse is named as a beneficiary and make appropriate changes.
• Update your will: This ensures that your assets will be distributed according to your current wishes, not the terms of your old relationship.

8. Mental health and financial health go hand-in-hand

Divorce is emotionally exhausting, but it's also financially draining. Neglecting your mental health can lead to poor financial decisions. Therapy or counseling can be a necessary investment to help you think clearly during negotiations and make informed decisions.

• Seek professional support: A therapist can help you navigate the emotional terrain of divorce, which in turn will give you the mental clarity to protect your financial interests.

In conclusion, protecting yourself financially in a divorce isn't just about managing your day-to-day finances—it's about strategic planning, legal knowledge, and emotional resilience. The decisions you make today will shape your financial future. Seek professional advice, keep meticulous records, and never be afraid to advocate for what you deserve.