If you're considering divorce, you've got a lot on your mind. Whether you're certain you want to split or still considering whether your marriage can be saved, there are five crucial things you should do before taking more definite action.
Know your family's assets. Have a solid sense of your spouse's annual income, as well as the worth of his or her investments and other assets, including any business holdings. Clearly determine your own annual income and the worth of any investments and other assets that are in your name, or that you hold jointly with your spouse. A divorce settlement should fairly apportion these assets -- and you won't know what a fair division looks like unless you know what's there to begin with.
Understand your liabilities. Your house may be worth $2 million on the open market. But if your mortgage balance is $1 million and your home equity credit line balance is another $500,000, your home's real net worth is just $500,000. A divorce settlement divides both debts and assets, and that could leave you with less than you've imagined.
Once you've listed your family's debts, track spending for a month (or longer) to determine how much it costs to run your household. Remember to include food, housing, clothing, utilities, insurance, tuition costs, loan payments, medical care, and other regular outlays. Note items that you could trim. A country club membership, for instance, might not be a necessity. The remaining total is a tab you'll need to pay on your own every month until you and your spouse reach a financial settlement.
Know your spouse's current and future earning potential, as well as your own. Increasing your own earnings now, if you can, can give you the freedom to walk away from your marriage without worrying about how you'll pay your bills while you negotiate a financial settlement. Stronger earnings (and savings) can also allow you to hire legal and financial specialists who may help you maximize your eventual settlement -- a settlement that will depend in part on your spouse's current and projected future earnings. Family, friends, or a divorce-funding firm could also help you hire and pay appropriate experts.
Secure important papers and pass codes. Make copies of your insurance policies, retirement account information, Social Security card, birth certificate, passport, visa and work permit (if you are a foreign national living in the United States), savings and checking account numbers, deeds and titles, mortgage paperwork, other loan documentation, and health and/or school records for yourself, your children, and your pets. Carefully consider the documents you would need if you suddenly found yourself living in a new place. Copy those papers, even if you will also take the originals. (It's better to have two than none at all.) Store originals and copies in a secure place, such as a safe-deposit box.
Next, secure your pass codes. Many spouses have access to one another's email, voicemail, cell phone, banking accounts, and other online and electronic accounts. You'll want privacy here from now on, so create your own accounts where necessary and change your pass codes on your existing independent accounts. Write down your new choices and keeping those notes in a secure place, alongside your important documents.
Preserve or improve your credit. This is not the time to be late with loan payments, as you may need to borrow money to cover living expenses or the costs of hiring experts who can help improve your settlement.
Don't make any new, large purchases, no matter how tempted you are to proclaim your freedom with a snazzy new car. The payments could make it more difficult for you to live independently, and your spouse could use the purchase as proof of your ability to pay for other things.
Consider canceling or reducing lines of credit. In one case, a wife's announcement that she wanted a divorce prompted her husband's $50,000 spending spree. Guess who got to help pay off that debt? If you do this you must inform your spouse, of course, so he or she isn't embarrassed or angry. "We need to cut back" is a plausible reason for most families.
None of these actions commit you to a divorce. In fact, all five are good, basic financial practices. If you ultimately reconcile, understanding and protecting your overall financial picture can help you build a better marriage. If you divorce, following these points can help you create opportunities for new happiness in a life on your own.