5 Tips You Must Know - Finances During Separation

I remember what it was like to go from married to single. It’s complicated. All your finances are intermingled. You share a cell phone plan and an insurance policy and so many other things. If you’ve been in a committed relationship for years and that’s over now, the thought of managing your money on your own can be scary. Here are five steps toward establishing a strong financial foundation.

Step 1. Get organized

Find a place where you’re going to store your financial documents. This could be a binder or in the cloud, a file cabinet or even a safety deposit box at a bank. Also, if you have multiple online logins, be sure to save all of your login information somewhere secure that you can easily access. Here is a list of items you may want to store there (some may not be relevant for your situation):

  • Birth certificates for you (and your children)

  • Social security card(s)

  • Passport(s)

  • Marriage certificate

  • Divorce decree

  • Tax returns

  • Will

  • Insurance policies

  • Mortgage and/or other loan documents

  • Rental agreement

  • Bank statements

  • Credit card statements

  • Retirement account statements

  • Credit report

  • Car title

  • School records

  • Medical records

If you don’t have all these documents, make a list of what you need and start requesting copies of them. Check them off as you have them.

Step 2. Take a financial inventory

For some, you may know this as a statement of net worth or your personal balance sheet. Regardless of what you call it, I'm referring to a document that lists all your assets (bank account, retirement accounts, real estate, business interests, valuables, etc.) and liabilities (loans, credit cards, and other debts). You may not have all of the information but you'll want to include all that you are aware of. Also, go ahead and identify accounts that you know exist even if you do not know the value. You can always update it when you get a copy of your statement.

As part of this process, be sure to take an inventory of your insurance coverage. Insurance is an important way to protect yourself from major financial losses. Identify the types of insurance you have, the carrier, the owner on the policy, the benefits and the beneficiaries.

Step 3. Establish your own financial identity

For many who have been in a long-term relationship, it’s common to have all the finances combined. However, if you are planning to be on your own, it's important to establish your own financial identity. This can feel like an overwhelming step for some but it can also be incredibly empowering.

For starters, you'll want to get a bank account that is in your name. Also, if you do not have a credit card that is in your name, be sure to open one. This is different from being an authorized user on someone else's account. When you’re an authorized user on someone else's account, they can remove you from that account at any time.  Also, you are not establishing your own credit history.

If you are married, you will be able to use your household income to open a credit card even if you don’t have your own income. Make small purchases with the credit card and pay the balance off in full each month in order to develop a solid history of making consistent payments.  A good credit history is necessary for things like getting an apartment and/or a loan down the road.

Spending 4. Create a spending plan

Yes, you may also know this as a budget but let's face it, many of us simply do not want to talk about budgeting.

Start with your income.  Include your employment income as well as any other sources of income. If you are not currently working, do some research on jobs that you would be eligible for to determine your earnings potential. Glassdoor is a great resource for salary research.

In addition to your income, you'll need to get a sense of your expenses. If you are leaving your relationship, your expenses will likely change substantially. Here are some categories to consider when thinking about your expenses:

  • Rent/mortgage

  • Utilities (gas, electric, water, etc.)

  • Phone

  • Groceries

  • Childcare

  • Insurance

  • Medical/dental/prescription

  • Pets

  • Taxes

  • Charitable contributions

  • Gifts

  • Entertainment

  • Other

Step 5. Compare your income and expenses

Here's the tough part. How do your income and expenses compare? If your income is substantially higher than your expenses, that's great! Unfortunately, that's often not the case. Going from one household to two means a significant increase in expenses so that may mean you need to determine ways to close the gap.

In some cases, public assistance might be available to help you close the gap. In others, you may need to look at increasing the hours you work or taking on a second job to make ends meet. Regardless of where you stand, knowing your starting point will help you to determine the best way to move forward.

Next steps

If you have taken these steps to create a solid financial foundation for yourself, congratulations! I recognize that leaving a long-term relationship is difficult both emotionally and practically. However, you are well on your way to being financially empowered. The next steps are a little different for everyone depending on the specifics of your particular situation. If you are contemplating divorce, I strongly encourage you to meet with a Certified Divorce Financial Analyst (CDFA) who can guide you through the process.