Best Ways to Sort Finances When Getting Divorced

by Beverly Bird
Resolving financial issues on your own can make divorce a lot easier.

Resolving financial issues on your own can make divorce a lot easier.

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If you know your marriage is ending, you and your spouse always have the option of resolving things on your own terms, rather than involving the court. If you reach an agreement on all issues, it can save you the time and expense of a contested divorce proceeding.

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Bank Accounts

Bank and investment accounts may be the easiest to sort out as you head for divorce. You can close the accounts and each take half the proceeds – or whatever division on which you both agree – then redeposit the money in accounts in your individual names. If one of you beats the other to the bank and takes all the money, you can usually get your rightful share back in the divorce proceedings, but this will run up legal fees and take a lot of time. You can preempt this possibility by dividing the accounts as soon as you know you're going to divorce. You generally cannot do this with retirement accounts, however. Pensions and 401(k)s can only be divided when a court order directs that this must occur -- and then you'll need a qualified domestic relations order to implement the transfer. All this must wait until your divorce is final.

Credit Cards

Most lenders will not cross one spouse's name off a contract you signed jointly just because you tell them you're planning a divorce. As it stands, they have two parties on the hook for payment, so they're not going to relinquish one, nor do they have to do this. Therefore, if you want to untangle your credit card accounts, you must typically close them. Some states, such as Minnesota, require that lenders comply with such a request. If closing accounts isn't an option, perhaps because you owe a balance, you may be able to freeze the accounts so no further purchases can be made on the cards. You have a couple of options for payment. For example, you might agree to sell joint assets to pay them off so you can both start fresh. Another alternative is to transfer balances onto cards in the sole name of the spouse you've agreed will pay off that particular account.

Real Estate

If you and your spouse own real estate together, such as your home, this presents a bigger challenge. Whether you decide to sell it or determine that one of you will keep it, you must decide two things: who's going to pay the mortgage going forward and what to do about the equity in the property or the sale proceeds. If you decide not to sell and one of you keeps the residence, you may consider refinancing the existing mortgage into that spouse's name, relieving the other of any obligation for it. You may also need to refinance an additional sum to buy out your spouse's equity. However, this might not be possible if your home is underwater, which means you owe more than its appraised value. In this case, you may be faced with no other option but a short sale, with both of you taking a hit to your credit, but you'll be free to move on. You can also defer the sale until a time when the market rebounds. If one of you continues to pay the mortgage after you break-up, that spouse may receive an additional share of the equity at the time of sale to compensate him for the post-divorce dollars he spent.

Motor Vehicles

If there is no loan against a car, transferring title to the spouse who will keep it is usually a simple matter of visiting the DMV and signing a form. The other spouse should receive another asset equal in value to half the car's worth. If there's still a loan against it, you can deal with it the way you dealt with your credit cards. If you're keeping the vehicle, you can transfer the balance onto a card or account in your sole name, you can refinance the loan, or you can pay off the balance with the sale of other assets such as your home, if you agree to sell it and there's sufficient equity.