A divorce can take months or years, depending on the divorce’s complexity and the cooperation of the parties. Thus, parties must develop a plan to manage money and property during their divorce. Any decisions made during a divorce to keep both households afloat need not be permanent, but can be used to judge how a particular arrangement will work long term.
Agreeing on a Budget and Managing Money
Whether or not divorcing couples physically separate during their divorce, spouses should prioritize making and sticking to a budget. Ideally, spouses should work together to identify all income and expenses and how expenses will be divided and paid. Couples may think it easiest to continue as they had during their marriage until their divorce is finalized, but a divorce inevitably brings new financial issues, especially when spouses start to maintain two separate households. If one spouse will not cooperate, the other spouse should make a budget to their best estimation and keep track of expenses.
Avoid the temptation to put all expenses on a joint credit card. Even if you agree to divide the debt on the card, you will remain responsible for the entire debt until it (and all interest) is paid off.
Once spouses have decided what needs to be paid, they must determine how it will be paid. Spouses should open separate bank accounts to deposit their paychecks and other income. If the joint account will remain open to pay joint expenses as the divorce proceeds, each spouse should transfer money from their own account into the joint account as needed, rather than the other way around. Each spouse may technically have the right to take half the money in the joint account, but doing so without the other spouse’s approval may lead to greater scrutiny and tension down the road. Once the divorce papers are filed, the court will issue an order restricting both spouses from taking or transferring any joint property without both parties’ agreement.
Debt may follow divorced couples for a long time. Even if one spouse agrees to take sole responsibility for all the credit card debt, the credit card company will not see it that way. Spouses should consider closing joint credit cards as soon as possible. Even if the card has a balance, the credit card company will be able to put a hard close on the account (a “hard” close means that neither spouse can reopen the account), keeping only the balance to be paid off.
Divorcing spouses should conduct an inventory of all assets and debts. Assets may include bank accounts, real estate, businesses, investments, retirement plans, employment benefits, expected tax refunds, vehicles, furniture, art, jewelry, and other valuable or sentimental property. Debts may include credit cards, mortgages, lines of credit, vehicle loans, student loans, and other financial obligations. The inventory should include both the joint and separate assets and the debts of both parties.
Safe Deposit Boxes and Storage Units
As you make an inventory, remember to include property in safe deposit boxes and storage units. You may want to bring a witness to sign a statement proving what was in the unit or box at the time that you visited.
Each party should gather their own copies of as many financial documents as possible. These might include bank statements, mortgage statements, tax returns, deeds, employment benefit documents, wills, trusts, and more. Parties should use these documents to value their assets and debts and monitor them for any changes. Any hidden or elusive information can be obtained through the legal discovery process during the divorce.
Once divorce papers are filed, a spouse should notify their bank and any other relevant institution of the court order preventing each spouse from taking or transferring money or property without permission.
Each spouse owes the other a fiduciary duty to not harm the other’s property (including the other spouse’s portion of joint property). Divorcing spouses should be careful when attempting to divide any property or make any changes without the other’s permission. For instance, you may believe that remodeling a room in your marital home will increase the home’s value, but unless your spouse agrees, you will probably be held solely responsible for any harm that your decision causes. A spouse who must interfere with a joint asset without the other’s consent should keep a detailed record of what was done and why. If a spouse believes that the other might harm their property, it may be helpful to take pictures or videos to establish the property’s condition and value.
A divorcing couple may file taxes jointly for any tax year in which their divorce was pending but not finalized. Parties must file separately for the tax year in which their divorce was finalized, even if the divorce was not finalized until the end of the year. Some divorcing spouses prefer to hire a professional to advise them on whether filing jointly or separately will be more beneficial. The IRS publishes information on filing taxes while divorced or separated.
Temporary Support Agreements
As of 2021, neither spousal support nor child support is taxable or deductible, but parties should confer with a lawyer or tax specialist, since tax laws may change.
If spouses cannot agree on a budget or simply feel more comfortable with a court order, a spouse may ask for a temporary support agreement, or “pendente lite” support. Spouses can enter into these agreements on their own by signing a contract detailing how much one spouse will pay the other, how often, and for how long, but they may also seek a legal order from the court. The court will use similar standards as for after-divorce support to determine how much one spouse should temporarily pay the other while the divorce is pending. Temporary support may be spousal support, child support, or both. Any temporary support agreement should explicitly state that it is temporary, does not necessarily indicate how spouses wish to continue permanently, and may be revised by a court order.