Preparing Your Finances for Divorce
How to Avoid Costly Money Missteps When Your Marriage Ends| By: Randall E. White, CFP®, RICP®, CRPC®, CMFC®
Most of us don’t plan for divorce. Yet it’s still heavily prevalent and, when it happens, nearly every aspect of life changes – seemingly overnight. Divorce can be mentally, emotionally, and financially draining. It is also fraught with decisions that must be addressed so that, when the dust settles, you find yourself standing on solid financial ground.
Divorce nearly always impacts your money, as it completely undermines most of the financial planning and wealth-building that a couple accomplished during the marriage. Untangling two people’s money is a messy and emotionally challenging process. That’s why you’ll want to prepare your finances long before spousal or child support is awarded, or your post-divorce budget is in place.
Since each relationship is unique, so is each divorce, and this means specific planning advice can only come from experts who are familiar with your situation. Despite that, there are some overarching tips that can guide you on the right path, no matter what you’re dealing with.
Employ Critical Thinking
Since divorce laws vary state-by-state, and sometimes district by district, be cautious of any advice you receive that seems to take a one-size-fits-all approach – no matter who it comes from. Before making any significant financial decisions about moving money or changing accounts, be sure to consult with your financial advisor and a divorce attorney who is licensed in your state.
Keep Track of Expenses and Plan Ahead
Some divorces come heavily anticipated while others are a complete surprise. Whatever your case may be, as soon as you know a divorce is inevitable, begin tracking all household income and expenses. Not only will this help you later as you build a budget post-divorce, but it will also be crucial information in court when a judge needs to determine how to split any assets and debts, and whether anyone should be awarded spousal or child support. Include in your records any money that goes towards food, clothing, entertainment, household bills, home maintenance, transportation, childcare costs, and anything else that you spend money on.
Retrieve older bank and credit card statements for help estimating spending numbers from previous years that can be used to help you estimate future expenses. While previous spending habits can make a great guide for future projections, don’t forget that circumstances change. Be sure to consider vacations, expenses such as replacing dishwashers or washing machines, as well as growing children – expenses for children will transition through life from childcare to after-school activities, to college tuition.
Although it can be stressful and tedious, gathering financial records is a crucial part of preparing for divorce. It can be a time-consuming process, so it’s better to start sooner rather than later.
You’ll want to collect any checking and savings account statements, any retirement account statements, any investment account statements, ledgers for any loans – this includes mortgage, auto, and personal loans, credit card statements, recent pay stubs, a list of assets, and debts that were brought into the marriage and those that have accumulated within the marriage, and income tax returns from the past few years.
If you’d like a comprehensive list of what documents you’ll need, the Institute for Divorce Financial Analysts offers a checklist of all the records you’ll need. Before beginning, it’s important to note that financial institutions and advisors are under no obligation to keep your requests confidential.
Be Assertive and Aware
Divorces have the potential to be tense and hostile. In some situations, one spouse may not release documents unless they’re legally forced to do so. Although it’s important to not let heightened emotions get the better of you, it’s equally as important to ensure you are getting what you need and deserve out of the divorce. It’s not vengeful to advocate for having the means to take care of yourself, prepare for the next chapter of your life, and maintain a comparable standard of living – it is necessary and important. Advocating for such requires having a healthy sense of control over the process and taking an active role in negotiations. You can’t be a passive observer of your divorce.
Be Mindful and Take Pause
One of the most effective ways to come out of a divorce in a strong financial position is to keep your emotions out of your decisions and refrain from making any big financial changes. After you’ve given things time and looked at your relevant documents, you can set your own financial priorities and get to work on what you need to remain on firm financial footing.
Though it may be tempting to tackle some of the big things like adjusting your life insurance beneficiaries or updating your will, practice patience. These things will be sorted out during the legal proceedings and jumping the gun too soon comes with the risk that the judge could award your spouse.
As with anything, consult with your attorney before making any big moves or if you’re unsure how to proceed.
SEE ALSO: When Life Throws You Curveballs
Stick to the Status Quo
Untangling joint finances is a tricky process that depends heavily on your state laws and customs. In the majority of cases, there’s no advantage to emptying an account or taking more than usual before the divorce – in fact, it could be detrimental come time for official proceedings.
Instead, try to keep all financial matters as transparent as possible. Continue using your accounts as you’ve been using them, whether personal or joint. If you don’t have enough money saved to hire a divorce attorney or cover the costs that go along with a divorce, see if you and your spouse can come to an agreement about how much you’ll each be spending. If things with your spouse are too hostile, consult with your attorney about getting a legal separation, which dictates how money can be spent by both parties leading up to and during the divorce.
Don’t be Afraid to Ask for Help
No matter the relationship you and your spouse have, having an attorney in your corner that you can trust who knows the particular divorce laws for your state is crucial to ensure you’re taking the right steps for you. While some may see getting a divorce as an aggressive act, the specifics that go into negotiating a divorce are typically too complicated and weighty to figure out without a professional’s help.
We recommend working with a Certified Divorce Financial Analyst (CDFA) who is specially trained to help you with the personal financial considerations throughout the divorce process. CDFAs have both tax and legal knowledge on common issues surrounding divorce, such as being able to analyze any pension and retirement plan issues or help you determine whether or not you can afford to remain in your home. They also work with the divorce team to provide the client and lawyer with data that shows the financial effect of any given divorce settlement and can appear as an expert witness if the case goes to court, mediation, or arbitration.
Divorce is a time of immense life transition and change. Wading through all the financial matters that are tied up in a divorce can be especially overwhelming and emotional. Using the tips above can help you prepare so that you can handle what needs to be addressed in the present and then move on to focusing on your post-divorce life and goals.
Though divorces can be difficult and painful, they don’t last forever. Taking steps now to better prepare means that you’ll sooner be ready to set new priorities for your life and finances and enter the next chapter of your story with confidence in the knowledge that you’re on firm financial footing.
At TriCapital Wealth Management, we’re dedicated to helping you achieve and maintain good financial health through all of life’s transitions. If you’re preparing for a divorce or other life transition that will impact your finances, please contact us today.
Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.