In some cases, no amount of marriage counseling can save a marriage. Divorce is an emotionally and financially exhausting process. It can be a long and messy process to untangle the finances. Fortunately, there are some things that you can do to prepare your finances for divorce. Here is the ultimate guide to divorce financial planning.
Be Wary of Advice
Be cautious of advice, whether it’s from a friend or from your favorite blog. Divorce laws vary by state and any piece of advice that seems to be a one-size-fits-all solutions could be untrue for you. Therefore, it’s so important to consult with a licensed attorney in your state. They can give you accurate advice on things like changing accounts, moving money, and other financial moves you can take pre-divorce.
Track Expenses and Budget When Dealing With Divorce Financial Planning
When it is clear that divorce is inevitable, start tracking household income and expenses. This will help you create a post-divorce budget as well as giving the judge and attorney a guide for deciding how to split assets and debts, and whether to award spousal or child support.
Include the cost of food, clothing, entertainment, household bills, home maintenance, transportation, childcare, and anything else that you spend money on. You can use past bank and credit card statements to estimate spending from past years. Read our tips for managing finances after a divorce.
Now, you need to budget for future expenses. This includes things like trips, vacations, and other “one-time” expenses like replacing the washing machine. You can use the previous years as a guide but remember to account for circumstance changes. Such as, if you currently pay for daycare, that will change to after-school care/activities, and then eventually to car insurance and college tuition. Understanding future financial needs will help you immensely in the long run.
Get Your Documents Together
Past financial records will show the history of your marriage’s financial health. Gather these documents as soon as you can. It will be tedious and time-consuming but necessary. Note, if you share any accounts with your spouse, your financial institution/advisors are not obligated to keep your requests confidential. To begin, gather the following:
- Checking and savings account statements (past year)
- Retirement account statements (current, if contributions haven’t changed)
- Investment account statements (past year)
- Ledgers for any loans, including your mortgage, auto loans and personal loans (past year)
- Credit card statements (past year)
- Recent pay stubs
- Lists of assets and debts brought into the marriage and those accumulated since marriage
- Income tax returns (past three years)
While this is a good starting place, The Institute for Divorce Financial Analysts offers a full checklist of financial records you should prepare.
Prepare for Disagreements
Even in amicable divorces, financial aspects of divorce can cause friction. In adversarial situations, it can be a very rough patch. One spouse may refuse to release documents unless legally forced to do so. Gathering the documents ahead of time might decrease the likelihood of confrontation.
Even if your relationship seems cordial, expect disagreements. Your spouse may be open and exchange information freely or they might fight you every step of the way. Prepare yourself for either situation.
Avoid Big Financial Decisions
Divorce proceedings will determine your major financial changes. It could be tempting to get a head start on things like adjusting your life insurance beneficiaries, but you should wait. Making changes to beneficiaries, wills, retirement accounts and the like will be sorted out in the divorce proceedings.
Making the changes yourself could result in the judge awarding your spouse. Furthermore, if you have already filed for divorce, making these types of changes could be grounds for criminal contempt charges.
Separating joint finances is a tricky situation. Most of the process depends on your state laws. Some states treat all income, assets, and debts as a single piece. If you take that piece, or even just part of it, in the weeks and months before divorce, it could be detrimental for your case. You should continue to use your accounts, joint and individual, as you normally would.
If you don’t have money set aside for an attorney and related expenses, try to come to an agreement with your spouse about an amount that you should each spend. If your relationship is not amicable, ask your attorney about your options for legal separation. This would dictate how each of you uses money until the divorce is finalized.
Ask for Help
A lawyer can help you sort through everything and help you navigate the separation of your lives and finances, whether the divorce is amicable or adversarial. Consulting a lawyer should not be seen as an aggressive move, rather an intelligent one. The specifics of a divorce are too important to be traversed without the guidance of professionals.
Along with your attorney, a certified divorce financial analyst can offer advice and expertise about how the divorce will affect your current and future expenses. So, ask for help. It’s ok. CDFAs help people who are in the middle of the divorce process or those just contemplating divorce. You can speak to a CDFA about your divorce settlement and how to best structure it.
Schedule a Consult for Divorce Financial Planning in Northern Virginia
If you are considering divorce, or already in the process, it’s important that you plan and prepare for the affects it will have on your finances. The experienced professionals at Argent Bridge Advisors are here to help you choose the best course. Contact us online or call (833) 568-4900 today to get started!