Our Divorce Tips provide you with important information as you navigate the divorce process. You will find material on preparing for divorce as well as insights on financial planning. Feel free to explore further on our Divorce Resource page or contact us and we will do the work for you.
A Comprehensive Financial Plan is a helpful tool in determining your current financial position
Develop a net worth statement that shows all your assets and all your liabilities
Summarize your income and expense figures for the past couple of years and gather two previous years tax returns
Organize past 6 – 12 months bank statements for primary checking account
Determine fixed expenses: mortgage, real estate taxes, insurance, loans
Detail discretionary expenses: groceries, dining out, household supplies, personal care, clothing
Consider future expenses: savings for college tuition, retirement
Determine how much it costs to run your household for one month
How do you envision your lifestyle going forward?
Engage an attorney
Explore all strategies for controlling the high cost of divorce
Review life insurance policies and the intended beneficiaries
Determine appropriate amount of life insurance to provide support for you and your children and to fund certain future expenses, like education
Are there any special health issues or needs for either spouses or children?
Review existing long term disability policies
Review any existing trusts for children or properties
Any possibility for future inheritances?
Did you bring any property or assets into the marriage?
Align estate plan with current circumstances
Certain tax consequences may present themselves during the divorce process
When you understand yourself, you are better equipped to be objective. This saves time, which leads to cost savings. If you are not prepared to look at reality – without the emotional entanglements – the outcome will never be what you need, let alone what you want. Instead of asking “why” questions, which lead to people becoming defensive, try asking questions that start with “how.” For instance, asking, “How did you come to that conclusion?” leads to a discussion about process. It allows both people to step back from the brink and look at things as they are.
When given the choice to settle at mediation or settle at trial, always try to go for the former for two reasons. First, going to trial is very expensive: typically, the only ones who win are the lawyers and experts, which leaves a smaller “pie” for the divorcing husband and wife to divide. Second, going to trial is risky because all of the decisions are left to the judge who has known the parties for a few hours at most; in mediation, the divorcing parties still have 100% control over how things will be settled (assuming they can come to an agreement).
It’s important to be frugal given that you have to manage the cost of separation and divorce, along with meeting your basic life needs. Try to follow a balanced approach, and don’t let your pride get in the way of accepting and/or asking for help from family and friends when you really need it. If your ex-to-be is prone to unpredictable behavior, you must find a safe place for you and your children to live. Don’t forego your personal security; prioritize this above other more “materialistic” items.
If you do your financial homework, you will be able to recognize a fair offer rather than settling for too little or rejecting a reasonable offer. Even if you have never seen a retirement plan, investment account, or bank statement, information is available if you know where to look. Contact the Human Resources Department at your spouse’s employer and ask about any and all benefits. As a spouse, you are entitled to know about current and future benefits; be sure to ask if there’s a pension plan in place. Review your last two or three tax returns, which will list any interest earnings, dividends, or capital gains that were reported. By comparing the financial affidavit to the tax return, you can reconcile assets and look for omissions. Finally, prepare yourself for the post-divorce lifestyle change by figuring out what your long-term needs will be and making a budget.
Trading their share of a spouse’s pension for the marital home is one of the most common mistakes divorcing people make. The marital home and the retirement plans are likely to be the largest assets in your marriage. Many people have such an emotional attachment to their home that they cannot fathom life in another house. The house, though, usually comes with high mortgage payments, maintenance and repair bills that can devastate a person’s finances. Even though the value of the house might be equal to the value of the pension at the time of divorce, they are apples and oranges. A house requires income to pay for repairs, maintenance, improvements, property taxes, and assessments; a pension, however, produces income without costing income. A 50/50 division of assets may sound equal, and it may in fact be equal in value as of the date of divorce, but it may not meet your long-term needs. You cannot sell a windowpane to put food on your table during your retirement years. It’s not how many assets you have – it’s what you can do with the value of those assets that matters most.
You can help your lawyer (and cut your costs) by making sure you have copies of all important financial documents related to your marriage, and by keeping track of expenses during the divorce process. Remember that your lawyer is not your psychiatrist: there is no point in telling your lawyer all the feelings you have towards your soon-to-be-ex-spouse. Letting your lawyer hear about your feelings will only make your wallet thinner. If you need to talk to someone, hire a psychiatrist – or talk to a friend if you don’t need professional help. Finally, ask your lawyer and/or financial advisor to help you identify which decisions absolutely need to be made now, and which can wait until your emotions are under control. Big decisions made in an emotionally unstable state of mind usually turn out to be expensive and non-sustainable ones.
Clarify the issues that are most important to you and keep your primary focus there. These issues should concern both finances and parenting. Consider refining these issues with the help of a financial or mental-health professional who can provide the focus, objectivity, and long-term vision that may be difficult for you at this tumultuous time. By clearly articulating your needs and goals, you will expend less time, money, and emotional capital over the small stuff – or by seeking to redress emotional hurts in ways that the divorce process really can’t address.
There are four basic things that you will need to survive divorce: a place to live, little or no debt, retirement assets, and liquid money. You should strive for a balance of each of these. You need a mix of each of these categories – not an abundance of one category and none in the others. There are three different general phases of the divorce process: the beginning, the middle, and after the divorce. In each of these stages, your budget may be different, so you should make sure that you have liquid money available at all times. In the beginning, you will need liquid money for the retainer to hire a lawyer. You should consider putting this liquid money in a money market account rather than a savings or checking account; this is a vehicle where you may earn more interest on your money. Make sure you understand what a money market account is and what it can do for you before making any decisions.
Plan for your children’s contingencies today to avoid going back to court annually. For instance, who will be paying for college? How much? What happens when the kids get to be drivers? Who will buy the car, paying for insurance, etc.? Who will pay for her prom dress or his tuxedo rental? Some of these items may seem trivial, but they can all lead to continuing litigation. Finally, make sure you and your children are covered by health insurance, and agree as to payment for the short and the long-term.
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