Divorce is a time of emotional turmoil that is typically made worse by the added burden of financial upheaval. Everything that the married couple felt certain about their financial future is suddenly erased, replaced by questions, concerns, and uncertainty.
It would be difficult to come up with a less desirable time to make critical financial decisions. And yet the period before the divorce is finalized is the only opportunity that most men and women will be given to protect their financial interests and take charge of the future.
Lawyers should always be a part of the scenery in divorce cases, especially when there is conflict between the two parties. To gain confidence, security, and peace of mind, many women and men – especially those with high net worth – also call upon the objective viewpoint of a third-party financial advisor. When seeking financial expertise, the Certified Divorce Financial Analyst (CDFA) or Certified Divorce Financial Planner (CDFP) designations indicate a higher level of knowledge, experience, and resources to assist with financial matters related to divorce.
Begin before the end
In most divorce cases, both parties will focus on gaining the most favorable financial settlement. One of the first issues addressed by legal advisors – documenting the marital estate – is given a great deal of attention early in the process. With professional assistance, it is possible to get past hearsay and misconceptions, and discover a true picture of what the financial future may hold.
Here at the beginning, a number of questions must be answered. How they are answered and the documents gathered to support claims will ultimately determine the final divorce settlement and create a post-divorce financial roadmap.
1) Determine the value of marital assets and liabilities. – In most states, all assets acquired during the marriage are considered joint marital assets. These typically include the marital home, cars, boats, condos, furnishings, art objects, antiques, jewelry, investments, retirement and pension accounts, and business interests. All of these assets must be placed “on the table” for valuation and division. Any outstanding debt and tax liability and/or penalties associated with any of these assets are considered when determining their value. The divorcing parties can negotiate an equitable division of these assets, or if they can’t agree, a court will decide.
2) Estimate financial needs. — The only way to determine how much money will be needed during divorce negotiations and after a settlement is to sit down and create a budget. Be honest, accurate, and thorough, and don’t overlook important items like health and life insurance premiums, vehicle replacement, and home maintenance. Locate documents whenever possible, but make educated estimates when they are not available. Before deciding whether to keep the marital home, have it inspected to determine repair and maintenance costs down the road.
3) Analyze long-term cash flow and net worth projections. — What will it take for each party to maintain a reasonable lifestyle, not just today, but in the foreseeable future? What will be the source of that income – earned income, investments, child support, alimony, or some other source? For a non-working spouse, it may be necessary to seek employment. What might be expected as income? Will a new employer offer health insurance? The budget created here at the beginning of the process is important in determining child support or alimony.
4) Develop and implement a long-term financial plan. — This plan should take into consideration the financial position of the individual at the time of the divorce, and where that individual would like to be in the future. As with any financial plan, the key to success is monitoring progress toward goals. Revisit the plan regularly and adjust it to meet the realities of life that may arise. For example, remarriage would likely change an individual’s income and assets, making it necessary to adjust their own plan to include their spouse. If the remarriage includes children, additional adjustments may be needed. School-age children will eventually grow. How will they pay for college?
Tell it to a mediator
If differences over the division of assets, child custody, or other matters cannot be settled, either party can call in a mediator – a professional trained to resolve differences, work out compromises, and offer solutions to challenges that arise during negotiations. The mediator may work with both sides of the dispute, but does not take sides. If conflicts and disagreements can’t be resolved, the case may end up in court, where a judge will make the final decisions.
The financial impact of divorce on both parties cannot be underestimated. It may take time to overcome, but with proper planning and good advice, a secure future is possible.
Do's and Don’ts When Divorcing
• Do prepare a budget and a financial plan to sustain you until your divorce is final. Get help if you don’t currently have the skills and energy to do this on your own.
• Do review monthly bank and financial statements and make copies for your attorney.
• Do review all tax returns that have been filed, jointly or separately, by your spouse.
• Do make sure all taxes have been paid to date.
• Do review the contents of any safe deposit boxes.
• Do get emotional support for yourself – talk to friends, join a support group, or see a therapist.
• Don’t make large purchases or create additional debt that might later cause financial hardship.
• Don’t quit your job.
• Don’t move out of the house before consulting your attorney.
• Don’t transfer or give away assets that are owned jointly.
• Don’t sign a blank financial statement or any other document without reviewing it with your attorney.
Source: www.360financialliteracy.org
