Divorce is rarely easy; however, organizing your financial paperwork, collaborating with experts, and making tough decisions can help alleviate some of the pressure.
Published March 16, 2023
Divorce can be emotionally taxing, especially when children, pets, and other loved ones are part of the equation. Compounding the emotional strain are the complexities involved in dividing assets. As experienced divorce attorneys would affirm, even amicable separations can quickly turn contentious as both parties assert claims on jointly acquired possessions throughout their marriage.
Nonetheless, a chaotic financial situation isn’t a foregone conclusion. If you’re confronting the possibility of a divorce, one of the most beneficial actions you can take is to organize your financial affairs. By doing so, you’ll position yourself more favorably in negotiations with your soon-to-be ex-spouse, thereby advocating for what you are justly entitled to receive. While this approach won’t guarantee a peaceful resolution—especially amidst the myriad complexities tied to divorce—it can significantly ease financial anxieties during this transitional phase of your life.
Four Steps to Prepare for Divorce
Step 1: Collect Your Financial Information
Begin by assessing your financial standing. Ensure you have access to all your accounts, documenting balances and detailed transaction histories accordingly. If you suspect your partner may have hidden joint funds in accounts inaccessible to you, take note of these concerns for discussions with your divorce attorney.
Key assets to evaluate include:
- Your primary residence and any additional real estate.
- Major personal property items—vehicles, boats, etc.
- Personal savings, retirement accounts with current employers, and other investment portfolios.
Don’t overlook less evident assets such as:
- Retirement accounts from previous employers.
- Inherited family assets or financial contributions brought into the marriage.
- Business assets if either spouse operates a business.
Important documentation includes:
- Recent tax filings, property deeds, and vehicle registrations.
- Income verification, such as pay stubs or business financial statements.
- Your credit report.
- Documents related to any current or potential income sources, like pensions, Social Security, or annuities.
Additionally, catalog all debts, including outstanding mortgages, car loans, student loans, and credit card balances. Make sure all personal belongings, from electronics to jewelry, are noted and appraised reasonably.
Step 2: Work With Professionals
Given the substantial changes ahead in your financial landscape, now is the ideal time to seek professional assistance.
- If you and your spouse believe you can amicably divide your assets, consider hiring a mediator. This neutral third party can facilitate negotiations on asset distribution and arrangements such as child custody, potentially avoiding lengthy litigation—a route that can save considerable time and costs.
- If mediation fails, enlist a reputable divorce attorney to manage your legal matters. Remember, separate legal representation is essential for both parties.
- It’s also wise to consult a qualified financial adviser to assess your joint financial situation and assist you in navigating the new realities of your individual lives. Often, each spouse may prefer their own financial adviser.
- Furthermore, involving an ERISA (Employee Retirement Income Security Act) specialist may ensure the equitable division of retirement savings and help avoid tax penalties.
Step 3: Prepare to Make Some Tough Decisions
Making decisions regarding the division of financial accounts can be straightforward; however, “real assets” such as your family home and cherished possessions often present more nuanced challenges. These items frequently lead to the most significant disputes between separating couples, as many cannot simply be divided in half.
One critical consideration involves your primary home. Reflect on whether the home was maintained by one or both incomes and whether either party can afford to retain it. Assess the proportion of your total assets linked to the home. Can the spouse who keeps it afford to “buy out” the other’s share? This issue is magnified when children are involved, as maintaining stability may be a priority. Ultimately, it’s vital to approach the decision about your home pragmatically; selling it might facilitate a more equitable division of assets.
Step 4: Update Your Financial Plan Early
As you navigate the divorce process, establishing a realistic budget for your post-divorce life becomes crucial. If you are responsible for minor children, you must also consider their care costs and how these will affect child support obligations.
As your divorce reaches its conclusion, begin to mold a financial strategy that reflects your new chapter. Essential components of your financial plan should include:
- Emergency savings to cover unforeseen expenses.
- An investment plan addressing both short- and long-term financial goals (e.g., acquiring a new car, taking a vacation, or renovating your home).
- A practical retirement plan that factors in tax considerations.
- A comprehensive estate plan.
- If relevant, a college savings plan for your children.
These elements will likely look different than they did before, but this shift presents an opportunity to manage your finances with increased autonomy and focus on your personal goals.
Your future starts now; remember, you don’t have to navigate this journey alone. A skilled financial adviser can guide you through the complexities of divorce and help you forge a path toward a confident new beginning.
