Planning for Divorce Means Understanding Finances

image of calculator, finance sheet

Planning your divorce means you must figure out your finances, first.

Some people hold out on asking for a divorce until they have gotten through the holiday season.

If you are one of those people, and on the precipice of asking your spouse for a divorce, remember that while choosing to end your marriage is a very emotional decision, it is also a business decision.

People sometimes do not consider that marriage is a legally binding financial partnership. Gaining an understanding of what it means financially to leave your partner is critical for anyone considering divorce.

There are four financial areas you need a clear understanding of prior to embarking on a divorce:

1) Assets/liabilities
2) Income/debt
3) Current monthly expenses
4) Anticipated future expenses

Assets/liabilities: Many times, people come to me who do not have a grasp of their assets/liabilities. If you have this information, you will be able to create a marital estate chart that enables you to determine the amount of assets and liabilities to divide between you and your spouse. While you may not know the values of your spouse’s business interests, real property, pensions and other assets that likely require appraisals, you should nevertheless list the assets on your chart so that you and your attorney make sure to include these assets in any equitable distribution.

If you cannot create a marital estate chart, then you and your attorney will work throughout your case to discover the breadth of the marital estate, taking into consideration any tax ramifications.

Income: Knowing your and your spouse’s income is important. This includes wages, anticipated bonuses, restricted stock units, legal agreements or arrangements if your spouse is involved in a partnership, and any trust fund/family money that might be relevant, among many other things.

A thorough review of your family’s most recent tax return will be a good place to start if you do not have a clear understanding of your family’s financial picture. Having access to retirement accounts, 529 education savings accounts or other investments is also important, as these will become a part of the settlement process.

Note: If you are not familiar with these documents because your spouse has always “handled the money,” your attorney will help you. As a certified financial divorce analyst and matrimonial attorney, I often help clients familiarize themselves with the marital assets, liabilities and income. If you are afraid to ask your spouse for this information, your attorney will help you during the discovery phase of the case. Always keep in mind if you are in a situation in which you feel your or your children’s safety is at risk due to domestic violence, you should contact the proper authorities as soon as possible.

Debt: This includes the mortgage, any outstanding loans, including student loans or car loans, and outstanding credit card debt.

One way to get a full accounting of your debt is to run a credit report.

Current monthly expenses: Make a list. You ultimately will need a full accounting of your and your children’s monthly expenses. A complete understanding will help inform the payor parent during negotiations of how much child support is affordable and inform the payee parent of how much child support is necessary to support the child(ren) without disrupting their lifestyle.

Don’t forget items such as child-care while a parent works, medical/health/ therapeutic/dental/orthodontic expenses, educational expenses which can include private schools, tutoring, college expenses, as well as a 529 account, extracurricular activity expenses and health insurance.

All should be itemized and considered separately as they may be classified as “add-on” expenses.

It will also be important to start to think about where you will live with your children and whether or not you should be staying in the family home. There may be capital gains ramifications later in a sale and brokers fees that the parent residing in the marital residence will be responsible to pay if that parent decides to buy out the other parent’s interest in the marital residence. There will also be expenses that accompany living in any home that should be considered.

Anticipated future expenses: Make another list. This one should include whether or not you expect to have full or joint custody of any children you may have together (adjust accordingly), anticipated educational expenses including private school and college, extracurricular activity expenses including the costs of uniforms, travel to events, concerts, etc., as well as required contributions to any education-related savings accounts and management of trusts that might be set up for the children.

This is a basic list to get you thinking, as this gets more complicated as you delve deeper into the process, and your future financial situation is just one thing to consider when considering your divorce. Try to take a breath, and then find an attorney who can help you with all of these issues.

It is always a good idea to get professional guidance from a divorce financial analyst and matrimonial attorney about your particular situation even before you choose to ask for a divorce.

After all is said and done, you will be happy you thought it through, as this will likely be one of the biggest decisions of your life.

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