If you find yourself at a crossroads, contemplating divorce, you’re likely aware of the emotional and personal toll it can take. But have you considered the financial aspects? Preparing for a divorce is not just about untangling your emotions; it’s also about safeguarding your financial well-being and future. Here, we’ll guide you through the essential steps to prepare for divorce financially, and also highlight some critical pitfalls to avoid.
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Understand Your Current Financial Situation
The first step in preparing for divorce is to have a clear picture of your current financial situation. Gather all your financial documents, including bank statements, tax returns, pay stubs, and information about assets and debts. This is the foundation upon which you’ll build your financial strategy. Depending on how organized you are, this can take a while, so make sure you allow yourself an adequate amount of time and try not to get too frustrated at how arduous it can feel. The only way to figure out what you are entitled to is to determine what you have (and what you owe) in the first place. The sooner you begin this organizational process, the better it will be for your divorce process (it will cost less in legal fees for your attorney to sort through your finances, you will be able to start filling out your financial affidavit sooner and will have a head start completing your mandatory disclosure requirements).
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Budget for the Divorce
Divorces can be costly, and it’s essential to budget for legal fees, court costs, and other divorce-related expenses. Consult with multiple family law attorneys to get a better understanding of what kinds of costs your case may involve. Having a budget can help you avoid financial surprises. If you and your spouse are in a place where you can discuss these kinds of things, have a conversation about how to budget for the divorce; try to get on the same page in terms of how much you believe it will cost. Sometimes the very act of trying to budget for a divorce together can help a separating couple stay focused on keeping the peace in the interest of staying on budget.
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Save for Post-Divorce Life
As you plan for divorce, start setting aside money for your post-divorce life. Create an emergency fund to cover unexpected expenses, and consider opening a separate bank account if you don’t already have one. It is important to remember, however, that everything a couple earns while married is presumed to be marital, including emergency funds and separate savings accounts. These will likely be subject to equitable distribution, but starting with some cash on hand to use for post-divorce life, even if it’s been split in some manner, will provide you a soft landing in the post-divorce landscape.
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Inventory Your Assets and Debts
Make a comprehensive list of your marital assets and debts. Include everything from real estate and vehicles to investments and credit card balances. Knowing what you own and owe is crucial for equitable asset division. There are plenty of assets that are commonly forgotten in this process, so check here for a list of items to make sure you remember when creating your inventory of assets and liabilities. Again, this will help you in your divorce process overall as well.
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Consider Your Post-Divorce Budget
Think about what your financial situation will look like after the divorce. This includes housing costs, child support or spousal support (if applicable), and your daily expenses. Creating a post-divorce budget will help you make informed financial decisions. It will also help you understand what your needs may be in terms of spousal support, and it will also help clarify what your housing options could be. Post-divorce financial uncertainty seems to be the thing that causes the most anxiety during a divorce, so the sooner you can start to get a realistic idea of what your financial future could look like, the more relaxed you will feel during and after the process.
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Avoid Financial Mistakes
When preparing for divorce, avoid certain financial mistakes that can have long-lasting consequences. These include:
Hiding Assets: Concealing assets is unlawful and can lead to severe consequences in court. Be transparent about your financial situation. Also, from a practical standpoint, it is not particularly difficult to figure out that someone is hiding assets, so don’t waste everyone’s time trying.
Gifting or Transferring Assets: Trying to give away assets or income to friends or family to protect them from division can backfire during the divorce process. And again, this is easy to figure out and there will be unfortunate consequences for the one trying to do this.
Becoming Unemployed or Underemployed: Intentionally quitting your job or reducing your income can affect spousal and child support calculations negatively. Maintain your employment to ensure a fair outcome. There are ways to figure out that someone has intentionally become unemployed or underemployed and the court will remedy this by imputing income to the person who is trying to artificially reduce their income.
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Consult a Financial Advisor
Consider seeking advice from a financial advisor who specializes in divorce planning. They can help you understand the financial implications and assist in making informed decisions. It is important to make sure that they are qualified in their role and that they will not improperly influence you during the divorce proceedings. A good financial advisor can be invaluable both during and after the divorce process. They can also assist you with budgeting for your future as well.
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Protect Your Credit
It’s crucial to safeguard your credit during a divorce. Monitor your credit report to ensure that your ex-spouse’s financial actions don’t negatively impact your credit score. Talk to a lawyer or financial advisor if you are concerned that certain actions taken by you or your spouse could negatively impact your credit score.
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Update Your Estate Plan
Review and update your estate plan, including your will, beneficiary designations, and power of attorney. Ensure your wishes reflect your post-divorce situation.
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Consider Collaborative Divorce Options
If possible, consider the collaborative divorce process, which focuses on cooperation and amicable settlement. This can often be a more cost-effective and less adversarial option.
In conclusion, preparing for divorce, especially from a financial perspective, is a critical step in ensuring your future stability. Understanding your financial situation, budgeting, and avoiding common financial pitfalls are essential components of this process. Remember, it’s essential to seek professional guidance, whether from a family law attorney or a financial advisor, to navigate the complexities of divorce and make informed decisions. By taking these steps, you can secure your financial future as you move forward in your post-divorce life. When you are ready to speak to an attorney about your options, please click here to schedule a consultation with our office.