Financially-speaking, divorces can be messy. Between state laws, beneficiaries, and dividing assets, it can become incredibly complicated to untangle your finances from your former spouse. If you find yourself needing to un-merge your money, follow these steps for covering your bases and recovering your assets.

Community vs. Separate Property

Your primary consideration is how your state views property ownership in a marriage. Depending on the state where you reside, the law guiding how to divide assets could be community property or separate property.

Community property includes any possessions gained during the marriage. According to this type, both spouses equally own marital assets such as property acquired, income earned, and debts accrued during the marriage.

Separate property allows the original owner to remain in control of their original assets. If you owned property before your marriage or bought assets with an inheritance, for example, you maintain ownership of those items.

Bank Accounts

Most couples have at least one joint bank account, and handling these should be top of your list when untangling assets in a divorce.

  1. Start by listing all the accounts you're connected to, and create a comprehensive list. For now, don't worry about whether they are jointly owned. You need to establish a record of every bank account in existence, then you can proceed with un-merging the shared ones.
  2. Once you've completed your list, make a note of which are joint accounts. If you and your spouse are still friendly, visiting the bank together to close the accounts is a viable solution. It might be awkward, but it's actually the quickest way to dissolve the shared account.
  3. Unfortunately, if you're not on good enough terms with your ex to plan a joint trip to the bank, it’s likely you won’t be able to close the account until the two of you reach a divorce settlement.
  4. In the meantime, you'll want to open a new bank account exclusively for yourself, if you don't already have one. When two parties are getting a divorce, establishing your own financial identity is critical. Opening your own bank account is the first step.

Credit Cards and Loans

Not sure how many cards your soon-to-be ex has? Maybe even forgotten a few of your own? Obtaining a copy of your credit report will help you identify all the credit cards and loans attached to both spouses. Investigate the accounts to determine whether you’re a joint owner or just an authorized user.

Keep in mind that having an independent credit history is paramount, whether you’re married, getting a divorce, or are single. Now is the time to apply for a credit card in only your name if you don’t already have one.

As for existing credit accounts, such as credit cards, personal loans, and car loans, you have three choices for handling each one.

  1. You can agree to pay them off now.
  2. You can agree to pay them off later.
  3. Do nothing.

The most efficient option is to settle the balances immediately, remove the other person as an authorized user, and close the accounts as soon as possible. This reduces the potential risk to your credit score of having a (probably not pleased) ex potentially forgetting to pay a bill or going on a spending spree.

If you agree to close the accounts now, even if you’re not paying them off, you’ll also lower the risk of your credit being impacted. Credit card companies will often allow you to close the account to avoid the possibility of additional purchases increasing the balance.

Notice the options include the language “agree to.” In a divorce, it isn’t advisable to manage joint assets or accounts on your own. If both parties can’t agree on how to handle the credit cards and loans, you might be stuck with option number three: doing nothing.

Investment Accounts

Clarifying the division of investments isn’t as straightforward as credit cards and bank accounts. Knowing the exact details, including penalties, of each account is crucial before agreeing how to allocate the funds.

For instance, the actual value could vary from the perceived value since investments often carry different levels of risk, or have specific taxes and fees that apply. And there’s risk tolerance to consider, too. If you’re more conservative, it can make sense to let your spouse keep riskier investments.

Sometimes liquidation is the best option. Since transfer and withdrawal fees can be costly, be mindful of the charges that apply before you go this route. If you determine this is the best option, experts recommend selling the investments first to share the potential tax burden of capital gains.

Keep in mind that retirement money will require a QDRO.

Your Home

With a divorce, you’ll be two distinct households. Only one of you can keep the house. But banks don’t let you remove one spouse from the mortgage just because you’re getting a divorce.

To get the home in your name only, the process requires you to refinance. And qualifying on your own for the loan can be tough. If you cannot be approved in just your name, the most viable option might be selling the home and dividing the proceeds.

Alternatively, you could leave both names on the house, though it’s a much more complicated solution that requires a co-ownership agreement as part of the divorce. If you're not on great terms with your former spouse, you may not want to continue carrying an enormous financial burden with them.

At a time when your mind and emotions are likely a mess, don't take any risks with your finances. Be wary of well-meaning advice from friends and co-workers, and consult with your attorney and financial advisor on the proper way to untangle your bank, investment and credit accounts, as well as any other shared property you'll now need to divide. This is a crucial time to rely on professionals that help ensure you've checked every box, found every account, and fully protected yourself from further financial damage.