When a marriage is ending, a legal separation can be a pivotal moment for your finances. Much like handling a divorce, the financial outcome of a legal separation largely depends on how you and your soon-to-be ex approach the situation. While your married life may not be legally over yet, it is often best to operate as if you are financially independent of one another. Here are some ways to handle your finances during a legal separation and prepare for single life again.

1. Have Tough Financial Discussions

The first step once you decide on a legal separation is to have tough financial discussions. Even if you and your spouse were not great at communicating about money during your marriage, it is in your best interest to improve this during your separation. This discussion may involve deciding how to split up joint accounts and debts or determining who pays which bills. Setting expectations upfront can help avoid misunderstandings later.

2. Understand Your Financial Picture

Getting a clear picture of your financial situation is crucial. This involves analyzing several items:

• Your assets: This includes what you have separately and jointly, such as checking accounts, vehicles, retirement accounts, and furniture. The division of assets may depend on the state you live in.
• Your debts: This includes credit card debt, student loans, mortgage, and car loans. The division of debts may also depend on your state.
• Your budget: Creating a realistic budget that covers your income and expenses is important. Draw up a new budget that ensures your income will cover your fixed expenses, debt payments, and savings while leaving room for discretionary spending.

Although your finances may change between now and your divorce being finalized, understanding your financial picture now will help you move forward with more confidence.

3. Keep Accurate Records

Financial record-keeping is essential during a legal separation. You may need to prove something in court, such as that you have paid a bill or did not make a charge. Keep records of all correspondence related to joint debts, proof of payments made on joint debts, documents relating to the opening of new, separate accounts, and any documents that may be required to prove you stopped using joint accounts. For extra security, keep both paper and digital copies of these records.

4. Open New, Separate Accounts

Open new and separate checking and savings accounts as soon as possible. Depending on your credit history and income, it may also be ideal to apply for your own credit card. Establishing separate accounts for yourself will help you in the long run.

5. Pay Joint Debts

To protect both of your credit scores, continue to make agreed-upon payments on joint debts. If your spouse is unable to pay a debt in a timely manner, you will need to pay it to avoid impacting your credit score. It is in your best interest to keep up payments, even if it feels unfair.

6. Think About Retirement Accounts and Insurance

Consulting a financial planner can be very helpful. While retirement accounts will not be officially separated until your divorce is finalized, now is a good time to work with an attorney or accountant to understand the impact on your balances and future plans. If you have a health insurance policy through your spouse, begin looking at your policy options and determine how this new expense may impact your budget. Consider updating life insurance policies and estate planning as well.

The Bottom Line

Divorce can be one of life’s hardest experiences, but money problems will only make it worse. Think of your finances as the foundation of a divorce, just as they are for a marriage. The stronger your financial foundation, the better off you will be.

At O1ne Mortgage, we understand the complexities of managing finances during a legal separation. If you need expert mortgage services, call us at 213-732-3074. Our team is here to help you navigate this challenging time with confidence and ease.