diff --git a/doc/files.md b/doc/files.md
--- 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 0.18.7
+* db.log: wallet database log file; moved to wallets/ directory on new installs since 0.18.7
 * 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 0.18.7
+* wallets/database/*: BDB database environment; used for wallets since 0.18.7
+* wallets/db.log: wallet database log file; since 0.18.7
+* wallets/wallet.dat: personal wallet (BDB) with keys and transactions; since 0.18.7
 * .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
 
diff --git a/src/wallet/init.cpp b/src/wallet/init.cpp
--- a/src/wallet/init.cpp
+++ b/src/wallet/init.cpp
@@ -307,9 +307,14 @@
     }
 
     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.h b/src/wallet/walletutil.h
--- a/src/wallet/walletutil.h
+++ b/src/wallet/walletutil.h
@@ -5,7 +5,7 @@
 #ifndef BITCOIN_WALLET_UTIL_H
 #define BITCOIN_WALLET_UTIL_H
 
-#include "util.h"
+#include <util.h>
 
 //! Get the path of the wallet directory.
 fs::path GetWalletDir();
diff --git a/src/wallet/walletutil.cpp b/src/wallet/walletutil.cpp
--- 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() {
     fs::path path;
diff --git a/test/functional/wallet_multiwallet.py b/test/functional/wallet_multiwallet.py
--- a/test/functional/wallet_multiwallet.py
+++ b/test/functional/wallet_multiwallet.py
@@ -49,7 +49,12 @@
 
         # 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.')
+            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(