Financial Awareness Is Key to Moving Forward Post-Divorce
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April is Financial Literacy Month, which is a great reminder to know your numbers before you divorce. Know your assets, know your debts, know your expenses, know your accounts, and have access to everything.
That sentence alone may make your head spin. If it does, know that you’re not alone!
Many people seeking to divorce feel overwhelmed by the sheer volume of information that is needed to move forward with their divorce—and they feel helpless when they haven’t been the spouse in charge of paying bills or managing money.
It is quite common in a marriage that one spouse is better at managing money. Most divorcing couples find tension and sometimes, disputes, when it comes to the couple’s “marital estate.” That includes the assets, debts and other acquisitions that occurred during the marriage.
If you’re splitting up, chances are good that you don’t agree on how to move forward. One spouse (or both) may want the house; one partner may not want to share retirement savings; if one partner has a much more significant income, they may be reluctant to pay support to the other.
Dividing assets and debts is one potential hurdle that may be painful during your divorce. Painful, but necessary.
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“Equitable distribution” of the marital estate means a fair, not always equal, division of shared assets and debts. But first, both parties need access to, and a clear picture of, what’s on the table.
If you feel like you’re out of the loop on your financial picture, start by requesting your credit report from one of the three major reporting agencies. (Karma.com offers free credit reports!) In that report, you’ll find all accounts and cards in your name alone as well as joint accounts.
Once you receive the report, review each account to ensure accuracy, amounts, and payment history. Dispute inaccurate information immediately.
When acting as a mediator or as an attorney, I ask that each spouse provide a copy of their credit report to me and to the other. It provides confirmation of the debts that exist and must be dealt in deciding how to distribute the marital estate.
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If you’re a high net worth couple, your financial picture may be even more complicated than you expect.
Don’t worry, though! We will get to the bottom of everything. Transitions Legal’s financial assessment in divorce includes not just hard numbers but also in-depth conversations with you about your values around money.
In some marriages, one spouse is a free-spender while another is more frugal. We bring values from our families of origin, past experiences and upbringing into the financial picture of a marriage. That’s why money can be a breaking point for many couples!
Your values surrounding money will help guide the divorce settlement, too. In Collaborative Divorce and Mediation, we have deep, meaningful conversations about what matters most to you as a couple and as a family. This guides the divorce so you can both leave the marriage feeling as good as possible about what comes next.
These are not easy conversations and one of the unique aspects of Transitions Legal’s work with you is preparing you for these conversations with resources and tools unique to our firm such as the Our Family in Two Homes workbook.
Still, to get a clear picture of where you’re headed post-divorce, we need a clear picture of where you are now. We can start with a bank balance or account statement.
Some documents or accounts you might want to look for include the following:
- Investment portfolios
- Retirement accounts and pensions
- The deed to your home(s) and mortgage statement
- Bank accounts
- Business accounts if one or both of you own a business
- Tax returns from previous years
- Monthly expenses for your household
- Credit card statements
- Credit reports
- Pay stubs
- Monthly cash flow
In Collaborative Divorce, a Certified Divorce Financial Analyst (CDFA) is part of the team as a strategist who will help with all of this as well as provide insight for your post-divorce financial future. The CDFA on the Collaborative Divorce team will lead you and your spouse in exploring the division of assets, identify tax issues, and help address how to best manage the children’s financial needs for education, extracurricular expenses, medical treatment and more, based on income flow.
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It is also not unusual to include a CDFA in Mediation depending on the complexity of the marital estate and where clients will benefit from additional education about their finances.
The higher your net worth the longer this part of your divorce may take. You might be surprised, but the more debt you have also plays a role in the complexity of dividing assets. It’s important not to rush financial fact-finding or planning! It takes time to create a complete picture of your marital estate.
Many people worry about how they’ll make it financially post-divorce. It may take some months before we can create a clear picture of what your asset distribution will be once the divorce is final.
One thing you can do to be proactive is to create a budget. Look at your expenses and see what you’re likely to carry over into your post-divorce life. This exploration will prepare you for the financial discussions surrounding not only the division of your marital estate, but also about spousal support and child support!
If the expenses of your married life are too high to continue after the divorce, we’ll have conversations about how to trim so you feel confident in your new life.
It’s our job to guide you through the often-complicated financial waters of your divorce and help you emerge on the other side with knowledge, confidence and a clear path.