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How to separate your finances during divorce

Ways to protect your assets and what you need to know about marital debt.

Once you and your spouse decide to go your separate ways, you’ll need to work out a plan for splitting finances in divorce. It’ll help protect your money during divorce and give you a better idea of your post-divorce finances.

First, do you live in a community property state?

If you live in one of the following community property states, you’ll split the assets you’ve acquired during the marriage 50/50:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Otherwise, you and your soon-to-be ex will need to come to an agreement on how to split your investment accounts, credit card debt, mortgage and more.

Splitting finances in divorce: Where would you like to start?

Bank accounts

With joint bank accounts, both spouses can deposit and withdraw money. That also means that each spouse has the legal right to drain the account on a spending spree.

Before you start the divorce proceedings, it might be a good idea for you and your spouse to divvy up the funds, close the joint account and open new accounts separately. You’ll eventually need to factor these funds into the settlement, but separate accounts eliminate one spouse from cleaning out joint bank accounts.

If you’ve already started the divorce process, a judge may freeze the accounts, restricting either party from accessing funds without court approval.

What you’ll need

Bring the following with you to the bank to close your joint account:

  • Government-issued ID
  • Bank account number

How to close your joint bank account when splitting finances in divorce

Here’s how to give the bank the OK to close your joint bank account when you’re splitting finances in a divorce.

  1. Transfer funds to new accounts. Many banks won’t close an account unless the balance is zero. Be sure to discuss how and where to distribute the money with your spouse.
  2. Cancel automated transactions. Be sure to arrange that all recurring deposits and auto-pay bills are updated to your new accounts.
  3. Close the account. Head to the bank or call your bank’s customer service number to request an account closure.
  4. Verify your identity. Show your government-issued ID card and answer questions to verify who you are.
  5. Complete and sign paperwork. Sign all the documents to make it official.

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Car loans

Auto loans are a form of debt. Even if the loan is in the name of one spouse, you might still be responsible for the debt, especially in a community property state.

If neither one of you want to keep the vehicle, you’ll need to sell the car to settle the loan. But if one spouse plans to keep the car, they’ll have to refinance the loan to remove the other spouse’s name.

What you’ll need

Gather the following documents to remove your spouse’s name from your car loan:

  • Current loan documents
  • Driver’s license
  • Car vehicle identification number (VIN)
  • Proof of income and employment
  • Social Security number

How to refinance your car loan when splitting finances in divorce

Refinancing your car loan in your own name typically follows the same process as taking out a new car loan. Here’s what to expect:

  1. Compile the necessary documents. Aside from the list above, you should also have an idea of how much your car is currently worth. You can use a website like Kellye Blue Book or Edmunds to give you a ballpark number based on your car’s specs.
  2. Prequalify for refinancing with a few different lenders. Research lenders that offer car loan refinancing to see if you qualify. If you do, fill out their prequalification forms to see what rates and terms you might qualify for. Sticking with lenders that offer prequalification without a hard credit check will help keep your credit score in tact.
  3. Compare quotes to find the best rate and term. Compare your prequalification offers by cost, terms and how much your monthly repayment might change to find the best option for your finances.
  4. Complete the paperwork and sign the new loan documents. Once you’ve decided on a lender, complete their full application and sign your new loan documents. Your spouse will also need to sign documents relating to the title change because both names were attached to the first car loan.

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Credit cards

Take a look at your credit cards and see which accounts are only in your name, have a joint account holder and have an authorized user.

Authorized users can easily run up your credit card bill, but the debt is solely the credit card owner’s responsibility. On the other hand, for joint accounts, any misuse of the card negatively affects both owners.

During a divorce, you and your spouse should decide how to handle any outstanding debts. After you’ve determined who is responsible for what accounts, you should remove any authorized users from your credit cards. For joint credit cards, it’s a good idea to pay them off or transfer the balance, and then close the accounts.

What you’ll need

You’ll typically need to answer a few questions to verify that you’re an account owner before the issuer can process your request. This might include providing your:

  • Social Security number
  • Credit card account number
  • Driver’s license number
  • Address and phone number linked to the account

How to close a joint credit card when splitting finances in divorce

Here’s a snapshot of how to close a credit card account when splitting finances in a divorce.

  1. Pay off or transfer the balance. While some credit card issuers allow you to close an account that still has a balance on it, others require a zero balance. If that’s the case, you’ll want to pay off the balance or transfer it to another credit card.
  2. Cancel automated transactions. Update your auto-pay bills that are connected to this credit card account.
  3. Close the account. Depending on your card issuer, you can typically close your account online or by phone. However, some providers make it even harder to cancel by requiring a written request to be sent. In either case, you’ll likely need to provide a few personal details to verify your identity and complete the process.

How can I protect my credit score during divorce?

The divorce process can wreak havoc on your credit score, especially if your soon-to-be-spouse goes on a spending spree with your credit card or bank account funds. Here are three things you can do to protect your credit score:

  • Manage your debt and credit lines. Take control of your accounts by removing your soon-to-be-ex-spouse as an account holder or authorized user, and divvy up any joint debt. That way, if your spouse runs up a credit card bill or fails to make a debt payment, it won’t affect your credit score.
  • Split your joint accounts. Separate your bank accounts so that one spouse can’t drain it, which can leave you strapped for cash when it’s time to pay your mortgage.
  • Keep tabs on joint accounts. If you’re unable to remove your spouse from a joint account, be sure to keep up with your spouse’s payments. If your spouse can’t make a payment on time, you might need to pay the bill first to avoid a ding to your credit.

Insurance policies

You can either cancel your insurance policies or update an existing one and remove your spouse as a policyholder. For car insurance, you might see a rate hike.

Dealing with life insurance during a divorce is a bit more complicated. You can maintain a joint policy and establish a payment schedule, or cancel the policy altogether and take out a new plan.

Another option is to transfer the policy to one spouse. But since you’ll no longer benefit from the policy at payout, you’ll need to work out some type of compensation for premiums that you’ve paid in the past, as well as the potential increase in premiums on your new plan.

What you’ll need

You’ll generally need the following info to cancel your shared policy:

  • Policy number
  • Personal info, including name, date of birth and Social Security number
  • Written notice requesting your insurer to cancel your policy

How to cancel a joint insurance policy when splitting finances in divorce

Here’s a numbered checklist on how to cancel a joint insurance policy:

  1. Get a new policy. Take out a new insurance policy before canceling your old one to avoid a lapse in coverage.
  2. Call your insurer. Speak to your insurance company to find out the requirements to cancel your policy. Some companies can do it over the phone, while others may require a written request.
  3. Mail a letter. If required, send in a written notice requesting that your policy is canceled.

Mortgage or rental lease

You and your spouse should also discuss your living arrangements and whether one of you plans on staying in the marital home.

If you have a mortgage together, you’ll need to decide if you plan on selling the home or refinancing it in one of your names. If you’re currently renting, you’ll need to consider whether you’ll break the lease and how you’ll split the penalty fee. If one of you wants to stay on the lease and the other doesn’t, you’ll also need to discuss signing a new lease agreement with your landlord or management company.

What you’ll need

Refinancing a mortgage follows a similar process to your first mortgage. You’ll generally need to submit the following documents:

  • Proof of income, such as paycheck stubs
  • Asset information, including bank accounts and retirement accounts
  • Debt information, such as student loans
  • Copy of your current homeowner’s insurance policy
  • Tax documents, such as W2s
  • Government-issued ID
  • Social Security number

How to refinance your mortgage when splitting finances in divorce

Here’s an overview of what the mortgage refinance process looks like:

  1. Gather your documents. Aside from gathering the following documents listed above, you’ll also want to crunch the numbers and put together a new budget for your soon-to-be one-paycheck household. This will give you an idea of whether you can even afford this mortgage on your own, or if you should consider downsizing.
  2. Prequalify for refinancing with a handful of lenders. Check the eligibility requirements of a few different lenders to make sure you qualify. If you do, fill out a prequalification form with a few lenders to see what rates and terms you might qualify for.
  3. Compare your prequalification offers. Beyond just rates and terms, compare other costs each lender charges, including origination, underwriting, documentation, tax transfer and recording fees. Factoring in all of these elements will give you a clearer picture of which lender is offering the best deal.
  4. Apply for the loan. Once you’ve decided the lender you want to refinance with, it’s time to fill out the full application, get an appraisal and submit required documents.
  5. Complete and sign the new loan documents. If you’re ultimately approved and agree to the terms of the contract, all that’s left is to sign your loan documents and close on the loan. Your spouse will need to sign documents relating to the title change because both names were attached to the first mortgage.

Retirement accounts

Since most retirement accounts are only in one person’s name, you’ll likely only need to update your beneficiary on your accounts. Many retirement accounts allow you to add, change or remove beneficiaries online. You can also mail in the relevant form to make the necessary changes.

What you’ll need

To add a new beneficiary on your retirement accounts, you’ll likely need to provide the following information:

  • Full legal name
  • Date of birth
  • Social Security number
  • Address

How to update the beneficiary on your retirement account when splitting finances in divorce

If you update your beneficiary before your divorce is final, you’ll likely need to submit a hardcopy requesting to add a beneficiary, which may require spousal consent. But once you’re no longer married, you can generally complete the entire process online.

Here’s how to change your beneficiary:

  1. Log into your retirement account. Most retirement providers have an online portal or even an app that makes it easy to log into your account from your phone or computer.
  2. Click the page that manages your beneficiaries. Navigate to the page that lists your account’s beneficiary to begin the process.
  3. Remove your spouse as a beneficiary. Follow the instructions to delete your spouse as a beneficiary on your account.
  4. Add a new beneficiary. Provide the required information for your new beneficiary and update.

Your retirement service may also require you to mail in a physical form to verify this change. Some documents also require a notarized signature. Contact your retirement agency for your specific procedure.

Student loans

During a divorce, you and your spouse share the burden of any debt that you took out after you were married. Any student loans you had before the marriage remain solely your responsibility.

For student loans you took out under both your names while married, you’ll need to either split the debt or determine who’s responsible for paying it. The person keeping the debt will then need to refinance the student loan under their name.

What you’ll need

When you apply to refinance your student loans, you’ll typically need to submit the following:

  • Government-issued ID
  • Recent pay stubs
  • Recent tax returns
  • Statements from your current loan servicers
  • Payoff letters from your current loan servicers
  • Proof of residency, if applicable
  • Proof of graduation, if applicable

How to refinance student loans under your name when splitting finances in divorce

Here’s a rundown on how to refinance student loans under your name.

  1. Get your documents in order. Aside from getting your proof of employment and loan payoff statements together, now is a good time to check your credit score to see what type of lender you should apply with.
  2. Prequalify with a few different lenders. Many student loan refinancing providers allow you prequalify by filling out a short form to see what types of rates you might qualify for based on your credit score and income.
  3. Compare quotes and evaluate the loan terms. Once you have a few prequalification quotes in hand, compare the rates and terms to find the best lender for your needs.
  4. Fill out the full application. After you’ve narrowed down your options to the lender for you, you’ll need to fill out a full application to see what rates and terms you’re ultimately approved for.
  5. Complete and sign the new loan documents. If you agree to the terms, sign your new loan documents and wait to receive a notice that your new lender paid off your old student loans — this can take anywhere from 10 to 30 days on average.

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Your last will and testament

When you and your spouse go your separate ways, you’ll want to revisit any legal documents you’ve signed together, including your last will and testament, trusts and powers of attorney.

What you’ll need

Each state has a process that governs how to make changes to legal documents. For example, to amend a will, you’ll need a codicil, while some situations may merit a completely new will.

How to update your last will and testament when splitting finances in divorce

Here’s a rough idea of what’s involved with updating or replacing your last will and testament.

  1. Decide on your plan of action. You’ll either need to amend your existing will or write a new one based on the number of changes you want.
  2. If you’re writing a new will, revoke or destroy the old will. If you’re making changes, write a codicil or amendment with all of the changes.
  3. Find two witnesses. You, the person who wrote the will, and two witnesses need to sign the new will or codicil.
  4. Notarize the will — if required. Some states require this, while others don’t. Check with a legal adviser where you live if you’re not sure.

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3 expert tips for splitting finances in divorce

The divorce process is already financially draining. You can get ahead of it by separating your finances. Here are three expert tips to keep in mind:

  • Create a post-divorce budget. Your income and expenses are now vastly different than during marriage. Try to keep expenses low and budget well to avoid going into debt.
  • Track your child expenses. The custodial parent should keep track of all child-related expenses to ensure that the other parent shares the financial responsibility — even during separation.
  • Nail down your separation date. This date may come in handy when a court decides what is marital property. Income earned after this date is generally considered individual property.

Bottom line

While you may have once shared finances when you were married, you’ll need to separate your finances during and after a divorce to protect your assets and credit score. Take a look at our comprehensive divorce guide for more information about what else is involved when filing for divorce.

Frequently asked questions about separating finances in divorce

Get more questions about divorce and your finances answered here.

What happens if I hide money before a divorce?

While you can set aside money to use before a divorce, you must disclose your assets during the divorce proceedings. A court views money earned during the marriage as marital property, which requires that you split the funds in your divorce settlement.

How does marriage affect my spouse’s debt?

If your name is not on the original credit agreement, you’re not legally responsible for the debt. But in a handful of community property states, the court (and creditors) may view that debt as marital debt, which means you’d still be on the hook for repayment.

What is equitable distribution?

Equitable distribution is a way to divide property. Instead of dividing everything straight down the middle, a court will consider several factors when splitting finances in a divorce, including how long you’ve been married, each spouse’s expenses and how much each person contributed financially during the marriage. You can learn more with our guide to equitable distribution and divorce.

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