By Jim Daloisio, Director of Legal Services at Torchlight Tax

If you’re thinking about divorce, it’s essential to prepare for the financial separation that comes with it.

This includes dividing any assets gained during the marriage and, if children are involved, planning for the financial support of the custodial parent.

Review Your Financial Position

The first step is to review your financial position.

Understanding your current financial picture serves two purposes:

• It gives you a starting point for how your property might be split.
• It helps you figure out how to handle any debts from the marriage.

Ideally, you’d pay off joint debts like credit cards before the divorce, but that’s not always realistic. So, start by listing everything you owe and own. Create a detailed list of your assets and financial documents, including:

• Balances in all bank accounts
• Value of brokerage and investment accounts, including IRAs
• Real estate
• Vehicles
• Valuables like antiques, jewelry, collections, or quality furniture

Also, gather:

• The past 2–3 years of tax returns
• Accurate income details for both you and your spouse
• Insurance documents (life, health, auto, home)
• Retirement accounts and pension info
• A complete list of all debts (car loans, mortgage, credit cards, etc.)

If you’ve been a stay-at-home spouse or haven’t worked recently, you should open a personal bank account and apply for a credit card in your own name. These steps will help you build or maintain your financial identity post-divorce.

Calculate Your Post-Divorce Expenses

Work out how much your monthly life will cost after the split,  especially if you’re planning to stay in the home with the kids. You may find it’s more expensive than expected.

To calculate your expenses:

• Add up your monthly bills, including rent or mortgage
• Add in all other living expenses
• Then subtract that total from your after-tax income to see what’s left over (your disposable income)

This will help you determine your disposable income and what lifestyle changes may be necessary.

Close Joint Accounts ASAP

Once divorce is on the table, close any joint accounts. Creditors can legally go after either party for payments—even if one spouse racked up the charges.

Your divorce papers might say who pays what, but unless the account is closed, the creditor can still come after you. Also, any missed payments will hurt both of your credit scores.

Some creditors may require full payment to close the account. If so, ask them to transfer the balance to accounts held individually by you and your spouse.

Protect Your Credit

If your partner’s poor credit is dragging down your score, you may be able to separate their activity from your credit report. Under the Equal Credit Opportunity Act, lenders must consider evidence showing that bad credit history belongs to your spouse,  not you.

If shared accounts aren’t in your name, write to the lender and request that they include you. Check your credit report for errors and report inaccuracies to the credit bureau. They must correct verified mistakes promptly.

If you’ve used accounts in your spouse’s name but weren’t a co-signer, ask to be added as a joint account holder. Once you have a few accounts in your name, apply for a store card or major credit card independently.

Accounts opened before 1977 may only show in your spouse’s name. Point them out and ask the lender to consider them part of your history too. Lenders cannot ask for your spouse’s signature just to access their record if you’re using it to qualify.

Understand the Legal Side

One way to handle the legal side of a divorce—custody, property, alimony—is by coming to an agreement with your spouse.

It can save time, money, and emotional strain compared to a court battle or drawn-out lawyer negotiations.

Property division laws differ by state, and judges have a lot of discretion. Regardless of where you live, here’s what to do:

• Learn how your state handles property division
• If you owned something before marriage, gather proof to show it’s separate property
• Be ready to show any non-financial contributions (e.g., supporting your spouse during school)
• If you’ll need support or alimony, be prepared to prove why
• If you didn’t work outside the home, ask for money for training or education in the divorce agreement

Tips:

• If major issues like custody or valuable assets are involved, get your own lawyer
• Make sure the divorce covers all insurance policies (life, health, auto)
• Update beneficiaries on all accounts—life insurance, IRAs, 401(k)s, pensions
• Consider setting up a trust. This is especially important if you came into the marriage with a lot more assets than your spouse.
• See my videos How to Protect Your Assets in a Divorce and Can a Last Minute Trust Save My Assets in a Divorce 

When to Set Up a Trust

Trusts can be extremely effective in protecting your assets and do not generally require a spousal agreement if the asset is in your name and you came into the marriage with that asset. This will generally not work with assets that were created during the marriage. It is best done before marriage, but can still be done afterwards.

Indeed, if you have significant assets, you should have a trust as early as possible. A properly drafted trust can protect your assets effectively without a prenuptial agreement

This trust will not protect you from being required to support a spouse with alimony or pay child support. However, it will likely prevent your spouse from taking assets you brought into the marriage.

Contact Torchlight Tax if you are in a situation where your spouse might come after your significant assets.

You can set up the trust amiably by stating that irrevocable trust protects your assets in general. You can even set up a structure so your spouse will receive all your assets if you die  (if you want it this way), but they cannot take assets from you in a divorce.

Thus, if you set it up at the first, small concerns about divorce, you can set it up to protect your assets for both of you, and before any acrimony. Set it up later, it will still likely work. You will  need professional help drafting the trust documents so it works as planned to protect your assets.

Contact Torchlight Tax for a free consultation at 1-877-758-7797 or email info@torchlighttax.com.

Visit www.torchlighttax.com or our YouTube channel for hundreds of tax and asset protection tips.

Disclaimer: This content is intended solely for general informational purposes and does not constitute professional advice in areas such as accounting, tax, finance, investment, or law. Neither the author nor the distributor accepts any responsibility for actions taken based on this information. The content does not provide a comprehensive overview of any subject. Always consult a qualified professional before making decisions related to your business, finances, or legal matters.