Read time: 3 minutes
We’ll help you understand and prepare for how divorce can affect your finances.
- Assets and debts
Find out what they are and how dividing them works.
- Your home
Learn why you may or may not want to stay in your home.
- Retirement plan money and IRAs
Know what you’re entitled to and how that’s determined.
Read this article to find out what you need to know before filing for divorce.
Dividing assets
When it comes to dividing assets, understanding what they are and how the property ownership laws in your state work is important. Depending on where you live, you may need to divide your assets on a marital or separate property basis.
- Marital property. Both spouses equally own marital assets such as property acquired, income earned, and debts accrued while married.1
- Separate property. This allows a spouse to remain in control of their original assets. If you owned property before your marriage or bought assets with an inheritance, for example, you keep ownership of those items.1
Whether you hire a mediator or a lawyer to handle your divorce, you should still become familiar with the property ownership laws in your state. You’ll know what questions to ask, and you won’t have to rely solely on your mediator or lawyer’s advice.
Pets
During divorce proceedings pets are considered property, and the court will give pets to one spouse or the other based on marital and separate property laws. A pet that was owned by one spouse before marriage may become marital property if marital funds were used for its care. Then the court will award custody based on what’s best for the animal. They can also create shared custody and visitation agreements.
Find out more about pets and divorce.
Retirement plan assets
How your retirement plan assets are handled depends on your divorce agreement and state laws. A qualified domestic relations order (QDRO) is used to divide specific types of retirement plans, including 401(k), 401(b), 403(b), and 457(b) plans and certain types of pension plans. The QDRO defines who is entitled to all or a portion of the balance of a participant’s retirement plan. This could be a spouse, former spouse, child, or other dependent.
How a QDRO payout is distributed depends on the retirement plan’s policy. Generally, you can take a lump-sum distribution, roll the money over, leave your part of the money where it is, or receive retirement payments.
Learn more about how QDROs work and their tax implications.
Individual retirement accounts
Bank and investment accounts
For jointly owned accounts, talk to your spouse about closing them. If that's not an option, you may have to wait until your divorce is settled.
If you have money in a separate account that wasn’t acquired during the marriage, it may be considered separate property and not subject to being divided equally. Any money put in the account during the marriage is considered marital funds.
Dividing debts
How marital debts are divided depends on the property ownership (marital or separate) laws in your state. In most cases, debts will be divided equally, or at least equitably. Factors like who took out the debt, how other debts and assets are divided, and the ability to repay the debt can impact how debts are handled.
This means that each spouse is generally equally liable for all debts unless a prenuptial or postnuptial agreement has specified otherwise.
Credit cards and loans
You and your spouse may share credit card debt, car loans, or personal loans. You have three options for handling these before beginning divorce proceedings:
- Agree to pay them off now. This is the best strategy. And it will protect your credit score.
- Agree to pay them off later. This can be risky as there’s no guarantee your spouse will abide by the agreement. That could damage your credit score and the creditor may be able to begin collection proceedings against you.
- Do nothing and let the courts decide. The judge will try to make a fair and equitable division of your debts based on things such as each spouse’s financial contributions, earning capacity, and other factors.
Note: If you have a credit card in your name but your spouse is an authorized user, you don't need their permission to remove them. It may be wise to remove yourself as an authorized user on any of their credit cards too.
Your home
If you and your spouse bought a house after you were married, it’s considered marital property. Additionally, if one spouse owned a house before marriage and the other spouse contributed to the upkeep and mortgage payments after marriage, it can be considered martial property.
Selling your home and splitting the proceeds is the cleanest option. However, there can be situations in which one spouse may need or want to stay in the home. Know the rules in your state and discuss your situation with a divorce lawyer.
Explore options regarding your home.
1 irs.gov. March 2020.
Advice is provided by Vanguard Advisers, Inc. (VAI), a federally registered investment advisor. Eligibility restrictions may apply. VAI cannot guarantee a profit or prevent a loss.