diff --git a/doc/files.md b/doc/files.md
index 3d603445fbfcd..2eac7ed6641b1 100644
--- a/doc/files.md
+++ b/doc/files.md
@@ -6,13 +6,16 @@
 * blocks/rev000??.dat; block undo data (custom); since 0.8.0 (format changed since pre-0.8)
 * blocks/index/*; block index (LevelDB); since 0.8.0
 * chainstate/*; block chain state database (LevelDB); since 0.8.0
-* database/*: BDB database environment; only used for wallet since 0.8.0
-* db.log: wallet database log file
+* database/*: BDB database environment; only used for wallet since 0.8.0; moved to wallets/ directory on new installs since 0.16.0
+* db.log: wallet database log file; moved to wallets/ directory on new installs since 0.16.0
 * debug.log: contains debug information and general logging generated by bitcoind or bitcoin-qt
 * fee_estimates.dat: stores statistics used to estimate minimum transaction fees and priorities required for confirmation; since 0.10.0
 * mempool.dat: dump of the mempool's transactions; since 0.14.0.
 * peers.dat: peer IP address database (custom format); since 0.7.0
-* wallet.dat: personal wallet (BDB) with keys and transactions
+* wallet.dat: personal wallet (BDB) with keys and transactions; moved to wallets/ directory on new installs since 0.16.0
+* wallets/database/*: BDB database environment; used for wallets since 0.16.0
+* wallets/db.log: wallet database log file; since 0.16.0
+* wallets/wallet.dat: personal wallet (BDB) with keys and transactions; since 0.16.0
 * .cookie: session RPC authentication cookie (written at start when cookie authentication is used, deleted on shutdown): since 0.12.0
 * onion_private_key: cached Tor hidden service private key for `-listenonion`: since 0.12.0
 * guisettings.ini.bak: backup of former GUI settings after `-resetguisettings` is used
diff --git a/doc/release-notes.md b/doc/release-notes.md
index 78caddc8f0299..9ff567d680a91 100644
--- a/doc/release-notes.md
+++ b/doc/release-notes.md
@@ -72,7 +72,7 @@ Custom wallet directories
 The ability to specify a directory other than the default data directory in which to store
 wallets has been added. An existing directory can be specified using the `-walletdir=<dir>`
 argument. Wallets loaded via `-wallet` arguments must be in this wallet directory. Care should be taken
-when choosing a wallet directory location, as if  it becomes unavailable during operation,
+when choosing a wallet directory location, as if it becomes unavailable during operation,
 funds may be lost.
 
 Default wallet directory change
diff --git a/src/wallet/init.cpp b/src/wallet/init.cpp
index 67c46df87d69c..788bac2a468f6 100644
--- a/src/wallet/init.cpp
+++ b/src/wallet/init.cpp
@@ -194,7 +194,10 @@ bool VerifyWallets()
     }
 
     if (gArgs.IsArgSet("-walletdir") && !fs::is_directory(GetWalletDir())) {
-        return InitError(strprintf(_("Error: Specified wallet directory \"%s\" does not exist."), gArgs.GetArg("-walletdir", "").c_str()));
+        if (fs::exists(fs::system_complete(gArgs.GetArg("-walletdir", "")))) {
+            return InitError(strprintf(_("Specified -walletdir \"%s\" is not a directory"), gArgs.GetArg("-walletdir", "").c_str()));
+        }
+        return InitError(strprintf(_("Specified -walletdir \"%s\" does not exist"), gArgs.GetArg("-walletdir", "").c_str()));
     }
 
     LogPrintf("Using wallet directory %s\n", GetWalletDir().string());
diff --git a/src/wallet/walletutil.cpp b/src/wallet/walletutil.cpp
index fbb5215a51efd..f15e5de1e2a87 100644
--- a/src/wallet/walletutil.cpp
+++ b/src/wallet/walletutil.cpp
@@ -2,7 +2,7 @@
 // Distributed under the MIT software license, see the accompanying
 // file COPYING or http://www.opensource.org/licenses/mit-license.php.
 
-#include "wallet/walletutil.h"
+#include <wallet/walletutil.h>
 
 fs::path GetWalletDir()
 {
diff --git a/src/wallet/walletutil.h b/src/wallet/walletutil.h
index a94f286a44219..50ff736402918 100644
--- a/src/wallet/walletutil.h
+++ b/src/wallet/walletutil.h
@@ -5,7 +5,8 @@
 #ifndef BITCOIN_WALLET_UTIL_H
 #define BITCOIN_WALLET_UTIL_H
 
-#include "util.h"
+#include <chainparamsbase.h>
+#include <util.h>
 
 //! Get the path of the wallet directory.
 fs::path GetWalletDir();
diff --git a/test/functional/multiwallet.py b/test/functional/multiwallet.py
index 06409b6f3177f..d0c40e5446e0a 100755
--- a/test/functional/multiwallet.py
+++ b/test/functional/multiwallet.py
@@ -40,7 +40,11 @@ def run_test(self):
         self.assert_start_raises_init_error(0, ['-wallet=w12'], 'Error loading wallet w12. -wallet filename must be a regular file.')
 
         # should not initialize if the specified walletdir does not exist
-        self.assert_start_raises_init_error(0, ['-walletdir=bad'], 'Error: Specified wallet directory "bad" does not exist.')
+        self.assert_start_raises_init_error(0, ['-walletdir=bad'], 'Error: Specified -walletdir "bad" does not exist')
+        # should not initialize if the specified walletdir is not a directory
+        not_a_dir = os.path.join(wallet_dir, 'notadir')
+        open(not_a_dir, 'a').close()
+        self.assert_start_raises_init_error(0, ['-walletdir='+not_a_dir], 'Error: Specified -walletdir "' + not_a_dir + '" is not a directory')
 
         # if wallets/ doesn't exist, datadir should be the default wallet dir
         wallet_dir2 = os.path.join(self.options.tmpdir, 'node0', 'regtest', 'walletdir')