For couples that have joint bank accounts and have managed most of their day-to-day money management through these accounts, there can be an opportunity to start the groundwork for detangling this joint banking entanglement early in the separation process. There are benefits to doing this, but it also comes with some inherent risks, so it is recommended that everything is clearly documented as these transitions occur.
Many states issue financial restraining orders once you file for divorce that does not allow either party to open or close accounts without the other party’s written consent, make any extraordinary expenditures without the other party’s written consent, or transfer, close or open any accounts without the other party’s consent even if these assets are separate property the restraining orders can apply. It is important to know the rules of your local jurisdiction in this area so research accordingly.
Who should not do this
- Your overall household cash flow is barely positive, net even or negative. This means that the money coming into your account barely covers, just covers, or does not cover the expenses and you are living on credit cards.
- When there is a lack of trust to follow through on agreements made when accounts are separated.
- When there is a lack of transparency what makes up the marital life assets.
Why would someone want to do this and what should be documented, preferably by a legal document?
Scenario 1: Each party is given a mutually agreed amount of money from a checking/savings account for individual use:
- Balance in the account at DOS and any outstanding transactions not yet posted made prior to the date of separation (e.g., checks, pending bill pay transactions, automatic payments from the account being looked at).
- The dollar amount given to each party.
- This is a one-time pre-settlement distribution for each party to have funds available for things no longer considered in the interest of the community or household.
- Identify expenses that are either considered in the interest or not in the interest of the community or household, so it is clear what expenses are paid through community assets until those are discussed.
Scenario 2: You have temporary child/spousal/family support court orders in place and want to start separating payments that one or the other party will carry forward.
- Clearly document what expenses the person receiving support is responsible for with these funds and the timing of when they are to no longer use a joint account fund.
- To minimize reimbursement requests, start with some obvious expenses like cell phone plans, gym memberships, individual clothing expenses, and/or personal care expenses. Leaving expenses that are related to children and typically split by both parents like medical expenses, agreed-upon extracurricular expenses coming from the joint account
- Ideally, you can concurrently start separate individual accounts when temporary orders are started and freeze the joint accounts, but this is not always feasible, so again at the date, these payments begin document balances in joint accounts and any outstanding transactions not yet posted. Monitor expenses closely as you both wean off charging anything to the joint account. These may be considered reimbursable as you are settling these accounts.
- Agree on amounts that each party needs to contribute to the joint account to keep recurring community expenses paid so no charges bounce, which can result in a negative impact on your credit and bank charges.
Migrating from paying expenses from family income and joint or separate accounts to separate incomes and separate accounts can be very difficult to navigate but is a natural and necessary part of the transition process to becoming single again. The person with less knowledge or current practice doing this can be significantly disadvantaged. Documenting this transition and the assumptions that both parties are operating from the same set of music is important. A CDFA, a financial coach, your mediator and/or your attorney can all be great resources for helping to establish the appropriate plan for your case.
