Divorce is never easy on you emotionally, mentally and very often, financially. Whether it comes during the divorce process, or before or after the papers are signed, economic difficulties are all too common for many marriages that end in divorce.
The good news is that following a few financial guidelines can help protect your savings, investments and credit rating, and ease the burden during this difficult time.
Each year, 90,871 Brits divorce. While, in England and Wales you can only cite reasons like unreasonable behaviour or adultery to divorce, in the US, more than 80% of divorcing couples mention “debt and financial distress” as a main reason for the end of their marriage, according to an American Bar Association survey.
Studies have also found that most families suffer a decline in their finances following the divorce process.
By taking a few steps to protect yourself, your finances and your credit, a divorcee and their family can come out of the other side better than they might otherwise have.
We take you through 5 of these steps to minimise the financial damage below:
1. Plan the handling of your property
If you’re a homeowner, your mortgage was likely the most significant monthly payment in the relationship.
Make sure you agree on and understand how you’ll sort out your monthly payments, and figure out the division of your property value.
You have many options here and you can come to an arrangement that works best for both partners and kids, if they’re involved.
Whether one ex-partner buys out the other, or the property is to be sold after your kids become adults.
The best tip we can give you here to protect your wealth is to come to an amicable agreement.
The longer you both drag out your divorce, the more expensive it will be. How long does a divorce take? It can be as quick as four months if both sides remain amicable. If not, it could take years and lots of money. Having to take your dispute to the courts could cost you both thousands in fees.
Though some situations and scenarios can only be resolved by the courts, it’s best for everyone to come to a fair arrangement on your own, if you can.
2. Assess your debts and liabilities together
First, you’ll want to protect your credit and sort out any outstanding debts or bills that are in both of your names. Make a note of all of your existing shared liabilities.
Settle (or get a judgment) on how or to whom these responsibilities will be allocated.
If you’re worried or unsure, request a credit report which you can do for free online at many places with Experian and a few other UK credit reference agencies. These institutions provide credit reports for £2 in a ‘statutory report’ report. A statutory report is a prescribed layout with a protected price under law, the notional fee for such a report is £2 and this is also written in statute.
It’s worth doing this to see if you’ve missed any outstanding debts or direct debits. It’ll also give you peace of mind that your credit rating isn’t being affected.
3. Make sure your ex is keeping up with their payments
Make provisions in the divorce agreement for resolution of significant debt, at all possible. The last thing you want is someone reneging on an agreement which doubles your financial burden.
There are important implications for you personally if your spouse does not meet his/her end of the bargain on liabilities allocated through the divorce proceedings.
Call any shared accounts you hold (credit cards, department stores, cars, etc.) and close the accounts if you don’t have any balances.
Or, if they’re still in use, request the removal of your name from joint accounts if you won’t be using them anymore.
Remember that for jointly held credit cards, and for many other debts you accrued during the marriage makes you both liable and you’ll share potential negative credit rating impacts.
This means that you and your ex-spouse really do need to be on the same page when making payments after the divorce, otherwise it could come back to haunt you… and your credit score.
4. Create a budget for payments
You may be preparing for single life with a higher disposable income, but it doesn’t always work out that way. Especially if payments are due to your ex and children.
Or maybe you’ve gone from having two incomes together, down to one, which means your previous lifestyle may now be financially out of reach.
Whatever the situation, create a detailed budget, based on your new income level, and use any disposable cash flow to pay off debts.
Some people find that the easier way to pay off their debt is to pay off smaller bills first, then paying off any loans or unsecured debt, such as credit cards, especially the accounts with the highest interest rates.
Either way, plan for your new life by creating a budget. You’ll find that your finances look vastly different.
It might be for the better, it might unfortunately, be for the worse. With a budget, at least you can prepare to soften the blow.
5. Get a clean break order to make sure nothing comes back to bite you after the divorce
Maybe most importantly, especially to protect your current and even future assets, you’d be smart to get yourself a clean break order from your ex-partner.
In England and Wales, a clean break order is a court-approved financial settlement between you and your ex.
It will sever the financial ties you have with each other and protects you from a claim in the future if you were to purchase or be gifted any assets.
You’d think it’s common sense that once your relationship is over, that there shouldn’t be anything tying your finances together, but there are so many examples of cases that highlight the importance of obtaining a clean break order.
There was an example in the UK of a man who had won the lottery and his ex-wife successfully negotiated a 2 million pound settlement a full TEN years after they were divorced.
All because he didn’t obtain a clean break order. It’s worth getting one no matter your current financial situation. That situation could look vastly different in a decade and you’ll want to protect your assets.
If you need help
This is a time in which you will make many financial decisions, sometimes to the point of overwhelm and mental exhaustion.
If you find yourself in trouble during this difficult time, get help immediately from a reliable, professional debt or divorce specialist.
Be sure to thoroughly research the company you choose and look for a firm that works for the consumer.