A quick financial guide to divorce
If you’re going through a divorce, money might be the last thing on your mind, but having your finances in order can help make sure you get a fair deal in the separation.
Among the stack of emotions surrounding the end of your marriage and the possible effect on your children, it’s important to get a handle on your assets well in advance of court proceedings. This means everything you own and the money stored in your accounts.
During divorce proceedings, the court will assess your and your partner’s joint assets, but also any individual bank accounts and credit cards you hold. It’s worth doing a roundup of all your current accounts, savings accounts, and any investments you have, to give yourself an idea of what is likely to be taken into consideration.
If you own your home, whether jointly or separately, you can get it valued for free. This will allow you to compare the value with the remaining balance on your mortgage to see if you have any equity – in other words, whether you would make or lose money if the house were sold.
As well as accounts and property, the value of any expensive items you own, such as cars, jewellery, or musical instruments may be considered by the court too. Assets that you brought into the marriage are not usually considered, so anything you owned before getting married shouldn’t come into play. This might include a house you sold to buy a joint home with your partner.
Gathering this information in advance can give you an idea of your combined assets and help prepare you for court.
Your debts will also be considered. If you and your partner have any shared debts in both names, including overdrafts on joint accounts or outstanding balances on credit cards, then you both have a legal responsibility to pay them off. If you’re having trouble with debts, let your creditors know that you are going through a divorce as they may be willing to freeze the interest temporarily. You won’t be able to close any shared or individual accounts until they have been brought into credit.
You may also have shared debts that are held in your own name, such as a personal credit card that you used to pay for a family holiday. Legally, these are your sole responsibility, even if your ex-partner had a part in accruing the debt. If your ex is unwilling to contribute, you may need to prove that the spending was for both of you. You may be able to transfer the balance to an interest-free card, to keep the overall costs down in the long run.
Hannah Maundrell, editor in chief of money.co.uk, says:
“Debts taken out in joint names will continue to be the responsibility of both parties and so both will need to ensure that repayments are met in full and on time. The exception is credit cards where additional cardholders do not share responsibility for the balance and repayments – this sits with the primary cardholder. Those taken out in sole names before a couple combine their finances will continue to be the responsibility of the person that took them out (unless they get their partner added).
“The above will generally hold when it comes to divorce; however, in some instances the courts will take both pre-marital debts and those taken on during the marriage into consideration when they’re dividing assets and allocating maintenance payments etc.”
When considering how to share out a separating couple’s assets, the first thing the courts will take into account is your children. If you own your home, it’s very likely that your property will be granted to whichever of you has the children living with them most of the time. Even if the home is in your name, it won’t necessarily be given to you. This can be very difficult to deal with, but it’s a possibility that you need to be prepared for.
After separation, you will need to start managing your finances as an individual. For many people, this can mean an increase in living costs, as things like house payments and bills are no longer divided between two.
If you’ve become accustomed to living with shared finances, you might find it useful to keep a record of what your new lifestyle is costing you. Having a budget can help you identify areas where you might be overspending and where you can make savings. You might also want to look into whether or not you’ve become eligible for certain benefits, including child maintenance.
If you have a will and it refers to your ex-spouse, you may need to amend it. You can also add a ‘statement of wishes’ to your will, which is just a letter explaining why your spouse is not included.
Once everything is under control, there is a process that allows you to separate your finances from those of your ex. It’s called ‘financial disassociation’, and most credit agencies offer an online form where you can request this. You will need to demonstrate that you no longer live together and that all joint financial products have been closed. Once this is done, your credit rating will no longer be affected by your ex’s financial status.
Even after a relationship ends, communication is still important. The more you and your ex-spouse can agree with in advance, the simpler the process will be. Hannah Maundrell says:
“Discussing money with your ex may not be an option, but if you can talk things through then it will make life a lot easier. That said, it’s vital you know your rights; you’ll continue to be responsible for repaying joint borrowing, and you’ll both be able to access money in joint accounts.
“Write down all of your shared accounts, debts, policies and investments so you can clearly see where you stand and start separating them one by one until all that’s left to do is financially disassociate yourself from one another via a credit reference agency”.