Simple ways you can protect your money during divorce

Every divorce comes with difficulties and tough moments. Our everyday decisions, lifestyle choices, emotions and dreams for the future are all involved in such a major change.

Money is an integral part of all these areas of life. That's why it's so important to consider how to protect your money during divorce.

Conversations about how to handle finances while separating from your spouse may not be easy. For some, you'll likely want to include your attorney and accountant. Here are other ways you can start to plan a path forward.

Distinguishing between ours and mine

One of the first steps in splitting finances in a divorce is to clarify what property is considered jointly owned and what's considered solely yours.

Marital property, also referred to as community property, includes any earnings, property or assets acquired by both spouses during the marriage. Debts taken on during the marriage are also considered a joint responsibility.

Your personal property includes anything you owned before the marriage, as long as it was never blended with marital property. Personal property can be tougher to distinguish the longer you've been married. You may also claim gifts, inheritances and court judgements you distinctly received during the marriage, if they weren't mixed with joint holdings.

Retirement accounts are considered joint property, and you'll need to negotiate how they're divided. Retirement accounts sponsored by employers, such as 401(k)s, require a qualified domestic relations order to be prepared and submitted to the plan. In the case of an individual retirement account, or IRA, the separation agreement or divorce decree is submitted to the IRA custodian.

In either case, when you transfer retirement plan assets, do so carefully. Otherwise, the move could be considered a withdrawal, which may result in taxes and penalties.

Creating a solo identity

Once you have a handle on what should be divided—and what shouldn't—establishing your own distinct financial identity is essential. Here are some important steps you could follow.

1. Open your own bank accounts: Going forward, you'll want to ensure all paychecks and other earnings go into savings and checking accounts in your name alone. To open the accounts, you and your former partner will need to agree on how much you each get from existing joint accounts while allowing for any lingering household expenses.
2. Work out debts: Jointly issued credit cards and any other loans taken on during your marriage will need to be divided and transferred to individual accounts. From here, you can close the joint accounts as soon as possible. Student loans will likely be the responsibility of the individual borrower.
3. Don't let the mortgage lapse: If you bought a home as a couple, you're both responsible for the home loan until the divorce is final. You'll need to work out whether one of you will stay in the home after the divorce and how the other will be compensated for their share of the equity.
4. Develop a strategy for your stuff: Have a conversation about how to divide the items you owned together in the marriage. You might choose to sell some of what you owned and divvy up the proceeds. Create a list of what you want to keep and what can be let go.

Taking a broader perspective

Stepping back from day-to-day matters, you may also want to start modifying select parts of your estate plan to reflect your new reality. Good moves to make may include:

• Updating your power of attorney and healthcare power of attorney
• Updating your will with regard to your estate's executor and the guardian of your children
• Researching state laws regarding what you must leave your ex in your will—many states require you to leave them something
• Determining what you can change before and after the divorce is official—for example, changing beneficiaries on life insurance policies and retirement plans isn't allowed in most states until the divorce is final

Increasing the odds of a clean break

To help ensure things proceed as smoothly as possible on the financial side, it helps to be transparent. Your former spouse could perceive any moves you make without informing them as efforts to deceive, which could hurt your case in front of a judge.

It's not always easy, but taking steps to protect your money during divorce and keeping lines of communication as open as possible will help in the long run. You'll be more likely to emerge on the other side with firm financial footing and your own assets intact.