Going through a divorce sucks. Trust me, I know. I’ve been there. But when you’re self-employed it can get even more complicated and stressful. When I went through my divorce, I had to learn everything on my own. But since I experienced this first hand, I can share what I’ve learned along the way.
Aside from the emotional stress, there are financial worries that need to be addressed as well. So whether you’re about to get divorced or knee deep in the process, here’s what you need to know.
My experience came into play recently, when I met up with a client who is both self-employed and going through a divorce herself. She was scared, lost, and didn’t know what steps to take next. In her words “my financial situation is bad, really bad, and I don’t want to lose my business”.
By the time our conversation was over, she was feeling better and had a game plan of exactly what steps to take. If you don’t have a good strategy (especially as a business woman) you could get burned in more ways than one.
The best thing you can do is stay calm, keep the emotions out of it as best you can, and create a well-thought-out strategy. Here are some crucial steps to take to protect yourself, your future, and your business as you go through a divorce.
Step 1: Get Organized
The first thing you need to do is get organized and gather up all your financial documents. This includes statements for credit card accounts, car loans, mortgage loans, checking or savings accounts and investment accounts.
Any assets, debts and bank accounts need to be thoroughly combed through, so you get an accurate snapshot of where you stand. Look over the bank statements, insurance policies and other important financial documents to update yourself.
Doing this will make any unexpected situations less stressful and you won’t get side-swiped by surprises.
If you’re already organized with your finances, or use financial software like Mint or FreshBooks, you may already know all this information. In any case, you’ll want to update yourself and make sure everything is accurate.
Step 2: Fill in the Details
Now that you’ve written all the info down, or put it on a spreadsheet, it’s time to fill in the details. You don’t want to be caught off guard when the divorce lawyer starts asking you questions (and I promise you, they will).
Not only will they ask you these tough questions, they will request you to fill out forms filling in all the information. Basically they want your whole financial life written down, from assets, to debts to bank accounts.
- What’s the balance in each of your bank accounts (both personal and business)?
- What’s the balance(s) on your credit cards and other loans?
- What are the interest rates and terms for each of these?
- How is your business structure set up (are you sole-proprietor, LLC, or partnership)?
And the most important detail you need to know is whose names are on the accounts. Who’s responsible for the payments? Are they joint or individual accounts? Do you have your spouse listed on your business accounts? All of this will have to be sorted out properly, so you can protect yourself and your business.
Step 3: Divide all Joint Accounts
Once you’ve determined who owns what and who’s responsible for what debts, it’s time to separate all joint accounts, including business ones. When my ex and I went through our divorce, we had two joint assets; our mortgage and a joint bank account. Fortunately, the business account, car loan, and credit cards were only in my name.
If you don’t take each other off joint assets, you’re leaving yourself at the mercy of your partner. They may or may not pay their portion of the debt bill each month, or they may clean out your business bank account at will.
Don’t leave yourself open to their emotional whims. If your divorce isn’t civil, they could leave you fully responsible for any debts as well as tanking your credit score (which is tied to your business if you’re self-employed).
To properly protect yourself from this situation, you’ll have to divide assets and accounts by putting them in your own name. You may have read that in order to give up interest in your personal residence, you can sign a quitclaim deed, but this is not always the case.
Both names will still be on the mortgage papers, so in the event your partner doesn’t pay the payments, the bank will come after you. The only two options to get your name(s) off the loan is:
- Agree to sell the home (or whatever asset both of your names are on)
- Get a new mortgage/loan by refinancing into only one of your names
When it comes to a mortgage held in the names of two people, the lenders could care less about who lives in the house or who’s making the payments. All they care about is that they get their money. And if your spouse stops making payments, they will come after you and the assets in your business.
Until you sell the property or refinance it, you’re both equally responsible for the loan – despite your marital status or attempts to take your name off the property. I’m not saying this to scare you but to warn you that you have to put your big girl panties on and take care of yourself!
Step 4: Protect Yourself
Now that you’ve put things in motion to divide the assets, and get your name off joint accounts, it’s time to take precautions and to protect yourself as you move forward.
- Open up a new bank account (for both business and personal) in your name only
- Check your credit report and verify there’s no errors or mistakes
Before signing the final divorce papers, don’t be afraid to fight for what you want or need. It’s very difficult, if not impossible, to have some things amended after the fact.
Although it will be very hard emotionally — and there will be times you just want it all over, but don’t get in a hurry. You might make hasty decisions you’ll regret later, and your business could be the one that foots the bill.
Step 5: Keep a Paper Trail
There were days when my ex and I were fine talking calmly and sorting through our business, and then other days we couldn’t say one word without yelling at each other.
In the event you and your ex can’t discuss anything in a calm fashion, you’ll need to have written proof of your discussions and decisions. A verbal agreement will rarely stand up in court, and if you have a more complicated situation like a business, or children involved, it’s even more imperative to keep a paper trail.
Even something simple like saving your text messages or emails is better than nothing. In case something bad happens or you’re wrongly accused, you will have proof of your dealings together.
This also applies to any transactions with creditors or joint accounts where you’ve divided the accounts. You need to keep written records of any business transactions, debt settlements, loan refinances, debt payoffs and other financial recordings.
Getting a Divorce While Self-Employed
It’s never simple when you’re faced with an unexpected situation like getting a divorce while being self-employed, but if you take these important steps, it will be a little easier for everyone involved. Plus, you won’t lose your life’s work and can protect your career in the future.
If nothing else you’ll be able to lessen the damage. A business woman that’s financially prepared will be able to save a lot of time, money, and emotional stress. You’ll be able to move forward so you can live, love, and enjoy your work again.
If you’re going through a situation like this or know someone who is, please share this article with them.
Have you been through a divorce as a self-employed person? Please share any important advice you have, in the comments below.