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WalletPrep worksheet · Life events

What to do with your money during a divorce

Name ____________________ Date __________

Key ideas

  1. State law decides the split. Rules for dividing property, debt and support differ by state. Get advice from a family law attorney, a mediator or legal aid.
  2. Joint debts follow both names. Lenders aren't bound by your divorce agreement. Close joint cards to new charges and refinance joint loans into one name.
  3. Budget for one income now. List the bills you'll pay alone, compare them with your own take-home pay, and start a cushion before the divorce is final.

Vocabulary

Net worth
Everything you own minus everything you owe. It is a snapshot of your finances on one day.
Credit report
A record of your credit accounts, payments, balances and some public records, kept by each of the three credit bureaus.
Refinancing
Replacing an existing loan with a new one, usually to get a lower interest rate, a lower payment or a different term.
Take-home pay
The money that actually lands in your bank account after taxes and payroll deductions come out of your paycheck.
Emergency fund
Cash set aside only for surprises like a job loss, a car repair or a medical bill. A common goal is 3 to 6 months of essential costs.
401(k)
A retirement savings plan offered through an employer. Money comes straight from your paycheck, often with an employer match.

Work it out

Dana is renting her own apartment after her separation. Her take-home pay is $4,100 a month, and she wants three months of essentials saved.

  1. Take-home pay
  2. Rent
  3. Other essentials
  4. Left each month
  5. Monthly essentials
  6. Month 2
  7. Month 3
  8. Three-month cushion

Check yourself

  1. Sam's take-home pay is $3,800. Rent is $1,400 and other essentials are $1,650. How much is left each month?

    • A. $750
    • B. $1,050
    • C. $2,400
    • D. $650

  2. Your divorce agreement says your ex will pay the joint credit card. What is true?

    • A. The card company must remove your name
    • B. The card company can still hold you responsible
    • C. The debt is cancelled
    • D. Only your credit score is protected

  3. Under a divorce agreement signed after 2018, how is alimony taxed?

    • A. Deductible for the payer, taxable for the receiver
    • B. Taxable for both
    • C. Not deductible for the payer and not taxable for the receiver
    • D. Deductible for the receiver

Your turn

Pull your free credit reports at AnnualCreditReport.com and write down every account in your name. Then list the bills you'd pay on your own next month and subtract them from your take-home pay.

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Answer key

What to do with your money during a divorce

Work it out

  1. Take-home pay$4,100
  2. Rent− $1,550
  3. Other essentials− $1,700
  4. Left each month= $850
  5. Monthly essentials$3,250
  6. Month 2$3,250
  7. Month 3$3,250
  8. Three-month cushion= $9,750
  1. Dana's other essentials are utilities, groceries, car payment and insurance, health insurance, phone and debt minimums: $1,700. With rent, that is $1,550 + $1,700 = $3,250.
  2. $4,100 − $3,250 = $850 left each month for savings and everything else.
  3. Three months of essentials is $3,250 × 3 = $9,750. Saving $500 of the $850 each month gets her there in about 20 months.

Check yourself

  1. A. $750 $1,400 + $1,650 = $3,050 in essentials. $3,800 − $3,050 = $750 left.
  2. B. The card company can still hold you responsible The agreement binds you and your ex, not the lender. Close or pay off joint accounts so you aren't exposed.
  3. C. Not deductible for the payer and not taxable for the receiver For agreements made after 2018, the payer can't deduct alimony and the receiver doesn't count it as income.