How to prepare your finances for separation or divorce

The financial aspects of splitting one household into two can be very daunting, but if you follow these steps the task will seem much more manageable.

February 28, 2019
Finances separation divorce

The prospect of untangling finances and managing on just one income can be so daunting that many people delay separating for years — even indefinitely.

It’s easy to understand why. Finances affect so much about the way we live. Dividing assets usually means neither party has as much to spend on housing, for example. That prompts many people to move, either selling the marital home or leaving a rental property for two spaces that are more affordable. This stuff is disruptive and few among us really look forward to navigating these changes.

When kids are in the mix, the stakes seem quite a bit higher. Where we live often determines where our kids go to school. Similarly, our finances dictate whether or not we can afford private school tuition or programs and services that we rely on for children with special needs. Added to these, of course, are the everyday expenses of keeping our kids fed, clothed and enrolled in the sports or other activities they enjoy.

But if a relationship isn’t working and all efforts to turn things around have been exhausted, there’s no need to let fear of figuring out the finances prevent you from moving forward.

“Running an entire household on one income after living with two incomes can often mean things may change in a big way,” says a certified financial planner Shannon Lee Simmons, founder of The New School of Finance and author of Worry-Free Money. “But don’t lose hope. There is always a way.”

Related: How to live with indecision about the future of your relationship

In fact, gathering the necessary financial paperwork and getting started on a new budget could bring a measure of relief given that much of the anxiety surrounding separation and divorce stems from elements of the unknown. Information is power after all, and even if the financial picture that emerges requires some belt-tightening, you’re better off knowing what the situation looks like so you can begin to make informed decisions.

“Figuring out what you can afford for housing, transportation and daily living is really important to give you confidence as you move forward,” says Simmons.

Here are some good first steps to take to prepare your finances for separation or divorce.

Put up some safeguards

Ideally your relationship with your spouse is fairly amicable and both parties will act in good faith when it comes to your finances. Still, Karin Kidikian, a chartered accountant with a specialty in divorce accounting, says experience has shown her that it’s prudent to put some protective measures in place to ensure neither party is left high and dry.

Kidikian says she’s seen numerous cases where one person believed they could trust the other, but with hurt and grief in the mix, things turned ugly on the financial front.

“I would suggest calling the bank and changing authorization levels,” she says. “In the case of joint funds, what people don’t realize is that at any point the ex can go in and clean it out.”

Same goes with joint credit. One person can close a line of credit that the other had relied on to get by in a transition period, says Kidikian.

Luckily, your bank can change authorization rules so that both parties must agree to any significant withdrawals or account changes. Put these in place and you won’t have to worry.

Gather documents

The heavy lifting of sorting out the financial side of a separation often lies in simply gathering up all the needed documentation.

“There’s a lot of paperwork that needs to be done for the purpose of building a picture of what your finances look like. It’s very time intensive and oftentimes things go missing,” she says. Collecting all this can require calls to the bank, accountant, pension funds and other parties.

Even though my own separation was very amicable, I found that making time for tracking down all the necessary documents was quite burdensome to fit around work and caring for two small children.

Related: Splitting up? The kids will be alright

That’s why Kidikian recommends getting started right away on the hunt for all those bank statements and other papers you’ll need to establish what your individual assets and liabilities were at the beginning of the marriage and what your joint assets and liabilities are today.

You’ll need things like a minimum of three years of tax returns and notices of assessment for each of you, she says. It’s prudent to start making copies of these and putting them in a safe place off site.

“In cases where there are large gifts and you want to make the argument that these were excluded from joint property, you’ll need documentation to prove that,” says Kidikian.

Consider getting help

Kidikian acknowledges that this list can be pretty intimidating.

“Seeing it on paper it may seem like a lot, but when you start working through it, it’s very doable at the end of the day,” says Kidikian.

That said, you may want to consider getting some support with this task. If you and your spouse are amicable, you can divide up some of the phone calls and photocopying between you.

If it’s in the budget, you can consider hiring an accountant to help you navigate the process. Kidikian says an accountant can remove the guesswork from the experience and guide you through it step-by-step.

Alternatively, you may have a paperwork-savvy friend or family member who can come over and offer moral and organizational support to make this whole thing more pleasant.   

Simmons highly recommends getting a professional to help you plan for your financial needs going forward. “Be sure to sit down and get some unbiased financial-planning advice to map out what your life is going to look like financially. The more information you have the less overwhelming everything will feel.”

Throughout the process, it helps to remind yourself that the work-intensive part of preparing your finances for separation will soon be behind you. You’ve got this.