Divorce is often the biggest financial transaction of your life. What to do with the house? How to divide retirement accounts? What about college? How to pay the bills? Divorce often results in a decreased standard of living for everyone involved, at least for the short term. In addition, you are making these decisions under stress, which can mean that you are not thinking as clearly as usual. What is a person to do?
Here are Five Tips for Dealing With Finances in a Divorce:
1- Gather Information. Figure out what you have. Download statements for bank accounts, credit cards, retirement accounts, investment accounts, mortgages, lines of credit, car loans etc. Go back at least one year. Collect the last three years of tax returns. Consider running a credit report to make sure you don’t miss anything.
2- Do Two Budgets.
- Current Budget: Assess your income and that of your spouse, look at tax returns. Count everything from wages to interest and dividends on savings and investment accounts. For this budget, start with how you currently spend money. Go through bank statements and credit card statements for the last year. Be ruthless. Count every penny you spend from the mortgage or rent to fast food and Amazon. This doesn’t have to be fancy. If you’re a wiz on Excel, go ahead. But writing it out by hand on paper is fine too.
- Projected Budget: What is your future budget likely to look like? Will you stay in the home? What expenses are you likely to share with your EX (kid expenses?). What expenses might go away? Are there areas where you will need to cut back? What are your priorities? You may not have all the answers now, but start filling this in as best you can. You’ll add to it later. This will help you make decisions moving forward.
3- Get some legal advice. Talk to a lawyer about your rights and obligations. Be realistic. Will you receive child and spousal support? Will you have to pay child and spousal support? What is the difference between community property and separate property? How will this impact the division of your assets and debts in the divorce?
4- Get some financial and tax advice. Talk to a financial expert. Have them help you review your budget and make projections for your future. Have them help you set realistic goals. This may mean seeking employment, planning for savings and the purchase of a new car or home, or even planning for retirement. Ask your tax preparer how divorce may impact your taxes. Do some tax planning.
5- Consider How You Want to Get Divorced. This may be the most important decision of all. How much time, energy and money do you want to spend on your divorce. You don’t have to battle it out in a contentious court divorce. Consider a Mediation or Collaborative Divorce process. You do have choices. Consider which option suits your legal, financial and emotional situation.
Divorces come in all financial sizes. From the “college” divorce to the “gray” divorce, they all involve financial decisions that are big to you right now. Decisions that impact your life now.
Don’t go in blind, gather information and seek advice from the right professionals.
Contact us today for a FREE CONSULTATION to see how we can help you and your spouse manage your finances in your divorce.
Note: This information is general in nature and should not be construed as legal/financial/tax/or medical advice. You should work with your attorney, financial, medical or tax professional to determine what will work best for your situation.