How to Handle Your Finances in a Divorce: A Financial Advisor’s Guide

Divorce is one of those uncomfortable words that, when entering a blissful marriage, we hope never applies to us. But you and I both know that, unfortunately, divorce happens—a lot. It can be one of the most emotionally and financially challenging experiences in life.

While the emotional struggle is real, the financial impact can be just as significant—if not worse—even in friendly, uncontested divorces.

As a longtime financial advisor, I have helped many clients navigate the complexities of divorce planning, wealth division, and long-term financial recovery. In my experience, the key to financial stability post-divorce is preparation, maintaining financial independence, keeping records, and making informed choices together.

How to Prepare & Protect Yourself Before Divorce

No one enters a marriage expecting it to end, but having financial independence and preparedness can protect you if divorce ever becomes a reality.

When working with couples on financial planning, they often ask how best to manage household finances. I like the concept of a “we” account and a “me” account for each partner. The goal isn’t to prepare for divorce—it’s to maintain financial independence and credit history. Emergencies and unexpected changes happen, and a little preparation can make a big difference.

Steps to Take Before Things Escalate

1. Open Your Own “Me” Bank Account

If you currently share all financial accounts with your spouse, consider opening an individual checking and savings account in your name at your preferred bank. This ensures you have access to funds for legal fees, daily expenses, and unexpected costs.

Pro tip: Pay attention to account fees, accessibility, FDIC insurance, and whether the account allows for trust or beneficiary designations. Set up direct deposit with your employer for added financial security.

2. Get a Credit Card in Your Name

Building your own credit is crucial. If all your credit cards are tied to your spouse, it could leave you financially vulnerable. Open a credit card in your name alone and use it responsibly to establish and maintain a strong credit score.

Pro tip: Don’t close old credit cards that have no annual fee. One of my first credit cards was one I opened in college, long before I was married. I still keep it today because it helps maintain my credit history and has no downside.

3. Document Financial Assets and Debts

Before divorce proceedings begin, gather records for:

Bank accounts
Retirement savings (401(k), IRA, pensions)
Investments (stocks, mutual funds, real estate)
Debts (credit cards, mortgages, loans)

Having a clear record of what you own and owe will help ensure a fair asset division.

Pro tip: Take a few hours to organize your finances and create a financial first aid kit to access critical documents when needed.

4. Know Your State’s Divorce & Property Laws

Divorce laws vary by state. Some states follow community property laws (where assets are split 50/50), while others follow equitable distribution (where division is based on fairness, not necessarily equality).

If you anticipate a divorce, consult a trusted financial advisor and legal counsel early to understand your rights.

5. Establish an Emergency Fund

Divorce can be financially draining. Set aside at least three to six months’ worth of living expenses in a separate account to provide financial security during the transition.

Not sure how much you need? Use a budget worksheet to calculate essential costs, including housing, food, transportation, and medical expenses.

6. Update Beneficiaries and Estate Plans

If you have life insurance policies, retirement accounts, or a will, update the beneficiaries after divorce to reflect your new situation. Many people forget this step, and assets unintentionally end up with an ex-spouse.

If your ex was your designated beneficiary, review and update everything. Speak with legal counsel to ensure proper titling and beneficiary designations, especially if your dependents cannot yet manage their finances.

7. Consult a Financial Advisor Before Making Big Moves

Before making any major financial decisions—such as selling property, moving investments, or cashing out retirement funds—consult an experienced financial advisor.

Poor financial choices made in the heat of the moment can have long-term consequences. Having trusted, experienced guidance can help you navigate the many steps involved.

The Cost of Divorce: What to Expect

I remember a client, Hailey, who walked into my office shortly after finalizing her divorce. Her divorce attorney recommended she meet with me.

She had been married for 18 years, built a comfortable life with her husband, but had never handled the finances—not even a cell phone bill. After the divorce, she was left staring at a $28,000 legal bill and just half the retirement savings she had counted on. Her freelancing income alone wasn’t enough to cover her mortgage, and she didn’t know where to start.

Hailey’s story is not unique. The average cost of divorce in the U.S. is around $15,000 per person, but it can escalate into six figures depending on custody battles, asset division, and legal disputes.

Women, in particular, see their household income drop by 41 percent post-divorce—nearly double the decline men experience.

Understanding and preparing for these financial shifts can help you avoid common pitfalls.

Debt Management During Divorce

Debt is often one of the biggest financial headaches in a divorce. I once worked with Peter, who assumed his wife would continue paying their joint credit card after the split. A few months later, he checked his credit report and saw eleven missed payments had tanked his score by over 100 points.

His ex had stopped paying without telling him. Since his name was still on the account, the debt was legally his problem.

To avoid this:

Identify joint vs. individual obligations (keep a spreadsheet if possible).
Understand how state laws affect debt liability.
Ensure that debts assigned to an ex-spouse are removed from your name.

If credit card debt is an issue, some people explore consolidation options or 0% balance transfer credit cards. The best strategy will depend on individual financial circumstances—consult a financial professional before making changes.

Asset Division and Retirement Planning Considerations

Retirement assets are often the most valuable financial accounts in a divorce. Decisions regarding 401(k)s, IRAs, Roth IRAs, and pensions require careful planning, including:

Qualified Domestic Relations Orders (QDROs) for splitting accounts.
Tax implications of withdrawals or transfers.
Long-term retirement security despite financial changes.

In Hailey’s case, she had to choose between keeping the house or taking a larger share of her ex’s 401(k). After running the numbers, we realized that keeping the house was too much of a financial burden on her single income. She chose retirement assets instead, leaving her in a stronger financial position in the long run.

Divorce is never easy, but financial preparation and professional guidance can help you move forward with confidence. Every situation is unique, and financial decisions should be made based on your individual goals and circumstances.

Disclosure:

This material is for informational purposes only and is not intended as financial or legal advice. Please consult a qualified financial professional, tax advisor, or attorney regarding your specific situation.

The financial advisors at Sun Group Wealth Partners are registered representatives with and securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Sun Group Wealth Partners, a registered investment advisor and a separate entity from LPL Financial.