If you’re in the unfortunate position of considering a divorce, you’re likely overwhelmed by many things. Couple that with the draining effects of a failing marriage and it’s easy to let a simple thing like financial planning go neglected. Even if the separation is amicable, the stress of ending a partnership can be traumatic and have neither of you thinking clearly about your individual financial futures.
The key to a divorce, like any other messy process, is planning. Here are three common financial divorce hurdles and how to navigate them:
You trust your mental records of ownership and finances
As an exercise, take a minute to use a piece of paper and write down everything you and your spouse own that’s worth more than $500. You likely forgot at least a few things. This is why it’s important to take an accurate inventory and pictures with time and date stamps of anything that could be moved (cars, tools, appliances, art, etc.). As the divorce proceeds, these items might wind up “missing,” so document early and carefully.
The same goes for liquid assets. Get a full statement of all joint accounts as well as your individual accounts. If possible, redirect paper financial statements for your individual accounts to the home of a family member or trusted friend. This will keep the paper trail alive but deny your spouse access to your account information just by opening the mail.
Start tracking your joint debt. If you’re considering divorce, it’s a good idea to put a freeze or temporary hold on your joint credit cards. It’s shockingly common for one party in a divorce to “retaliate” at the end of a marriage by racking up a bunch of joint debt. If they spend it on big-ticket items, you might still be on the hook for that debt and credit card companies don’t care about your personal life. Once you’ve picked a date to tell your partner, or on the date your partner tells you, make sure to schedule an account freeze for the same date.
As far as your existing debt, there are two kinds you need to make an accounting of for divorce purposes: communal property debt and living expenses debt. Communal property debt is debt taken to purchase goods for the family. A store credit card that you used to buy new kitchen appliances is communal property debt. In most states, these debts are split down the middle. Living expenses debt is incurred to pay for day-to-day costs. If you and your spouse pay all your bills through a credit card, the balance on that card is living expenses debt, which is distributed somewhat differently depending on the state laws where you live. Make sure to have an accurate count of which debt is which with statements to back up your claims.
At the same time, resist the urge to “hide” money. You can (and should) maximize contributions to retirement accounts and health savings accounts, which are often excluded from divorce asset calculations. However, don’t put your cash and other assets in the name of a family member or friend thinking it’s a way you can keep it from your partner. Such dishonesty will become immediately apparent to a judge or lawyer and it will only make the messy process of financial separation harder.
You don’t set a new budget
If you’ve been married for a while, odds are good your finances are running on autopilot. You and your spouse make a set amount of money and have fairly predictable expenses. A divorce will change all of that.
Understand that there will probably be an adjustment period that will require you to eat into some savings or go into debt. You are adjusting to a new lifestyle, and even the most carefully made plans will miss something. Try to avoid excessive spending and make a plan that includes living within your income for the time being.
You also need to budget for the expenses of the divorce itself. Lawyers’ fees can cost several thousand dollars and you may miss time at work for court appearances and other events. You’ll also likely have to move into a smaller home or apartment, which means new home furnishings. If everything goes smoothly, your divorce could easily cost $10,000. You may want to consider alternatives to adversarial divorce to save money. Many states offer collaborative divorce or arbitration, which can save both of you thousands of dollars.
Not getting expert advice
Divorce is a messy financial process that combines the awfulness of a breakup with the financial problems of a company going belly-up. Trying to get your spouse to agree with you on the value of an asset or investment is probably an unrealistic goal. This is particularly true if you own growth-centric assets, such as real estate or a business.
When trying to decide the worth of these assets, it only makes sense to go to a professional to do your valuation. Get in touch with a certified financial planner or accountant who can offer qualified, objective advice about what your assets are worth. Finding someone both you and your spouse trust may be a challenge, but outside regulations make this process at least somewhat easier.
As in every other difficult aspect of your life, there’s nothing wrong with asking for professional help. Dealing with your marital assets is a messy process, and an outside voice can make the process easier.