How to financially prepare for a divorce

The new year is often a time for fresh starts. It’s also a popular time for filing for divorce; however, preparing for a divorce can be complicated.

The first step is to get your team in place including consulting with a divorce attorney and a divorce financial planner, suggests Alexandra Neff, financial planner at BOK Financial®.

Consulting with an attorney and a financial planner (Neff suggests looking for financial planners specializing in divorce, or with the CDFA® designation) will help bring the idea out of your head or emotions and into reality. These experts can also help you adjust expectations and create a systematic approach to achieving your goal of leaving the relationship physically and financially.

• The attorney can explain how your state statutes handle separation of assets, marital and child support.
• A financial planner specializing in divorce can help systematize gathering financial information, calculating your post-divorce budget and approaching different financial aspects of separation.

Key financial pieces for divorce preparation
You can start preparing for these conversations by gathering your personal financial information. For those who have been tracking a plan with a professional financial planner, gathering necessary information may be relatively simple, but if you’re starting from scratch, Neff suggests getting key financial pieces in place:

A balance sheet - this is a list of everything owned (aka “assets”), both joint and individual, including:

• Bank accounts.
• Retirement accounts.
• Annuities.
• Real estate.
• Vehicles.
• Life insurance policies.

Then everything owed, also known as “debts” or “liabilities,” such as:

• Credit card payments.
• Mortgage payments.
• Car payments.
• Student and any other loan payments.

Make sure to include tax returns, plus any loans or business dealings you might have co-signed with your spouse.

Cashflow - a list of all of your income and expenses. This includes:

• Any income streams from employment to investment dividends and interest earnings.
• All monthly bills and expenses.

“Think about how much you spend on daily living expenses such as food, clothing, medical, gas, bill payments, discretionary purchases—everything,” said Neff.

This net-worth statement will help you determine a budget for your post-divorce life and how much income you’ll need to bring in when you no longer have a second household income to support you.

 

If you’ve not been the one in charge of household finances, it may be a bit of a treasure hunt to collect all of this information. You’ll want to pull bank account and credit card statements, insurance policies and loan paperwork. Neff stresses the importance of keeping track of this information for your own personal finance planning on a regular basis, but it will also help you know where you stand before asking for a divorce.

Start with the basics
Neff recommends staying realistic in your expectations. “Don’t include marital support or child support payments in your future budget projections—even if they are included in the finalized divorce decree,” she added. “It’s not a given that your ex-spouse will be paying them on a regular basis. Ultimately, it will be up to the judge to decide and the ability of the ex-spouse to cover it.”

Your attorney and financial planner can give you more guidance on what may be considered marital property or separate property and whether it will be part of the asset division. “Just figure out what’s on the table first,” Neff suggests. “Make a list of expenses, assets and liabilities for yourself, and for your child(ren), if applicable.”

Monitor and protect your assets
If you tell your spouse you want a divorce and you have joint accounts, there’s nothing stopping them from emptying those accounts. However, if you’re tracking your money and see suspicious activity on the bank statements, you may be able to recoup those funds in the divorce settlement. So, it’s important that you’re involved with household finances and are tracking cashflows, said Neff.

Even for those not in the divorce scenario, she recommends keeping separate individual accounts throughout a marriage so you maintain some control over your finances. If you don’t already have one, with the guidance of your financial planner and attorney, open a separate account in your name. Start depositing your income and transition some funds to cover living expense, legal fees and emergencies to start establishing your financial independence and protect yourself from any potential financial manipulation by your spouse.

Know the score
Accessing your credit report is important to know what credit cards exist in your name and detect any fraudulent activity.

“You might discover your spouse has been taking credit cards out in your name and running up debt. Most fraudulent activity comes from someone you know,” she warns.

Credit reports can be requested free of charge on an annual basis from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion.

If you suspect your spouse may be hiding financial activity such as accounts you may not know about, Neff also suggests putting a freeze on your credit and any joint credit and hiring a financial investigator.

Seek support navigating emotions
Lastly, Neff suggests taking care of your emotional well-being in addition to your financial well-being. You may experience a range of emotions that could disrupt or sway you from what you need to take care of financially.

“Reach out for mental health support as well as the financial help,” said Neff. “Lean on family, friends and your community; don’t just shut yourself off. You can also reach out to a therapist or a support group if you want to keep it private. Just find someone you can talk to.”