Before you decide to separate and incur what can often be a high cost of divorce, you should do your best to gain a comprehensive understanding of your household’s finances. Not only will this educate you on what your finances may look like post-divorce, but it can also reveal how much you can afford to spend during the legal process. This will make you feel more prepared to negotiate and can help you walk into the negotiating room with more confidence. Think of your finances like anything else in life — when you’re knowledgeable about a topic, you can walk into any discussion with your head held high, ready to share your perspective. But when you walk into that same room with unanswered questions or a lack of understanding, your confidence takes a hit.
Start by keeping a detailed record of all your current expenses and try to anticipate any future ones. Then look to gather all of what you might consider “financial documentation,” including credit card statements, bank statements, retirement and investment account statements, any ledgers for loans and income tax returns. Yes, that’s a lot, but take things one day at a time, and check items off your list as you’re able to find them.
People who have the most in-depth understanding of their finances (and thus the most confidence heading into divorce discussions) are the ones who walk away feeling the most positive once the divorce is finalized. It’s not because they secured the biggest payouts or the most assets — it’s because they were empowered to make their own decisions about what was best for their future.
Additionally, one asset that really helps people in the process of divorce is an emergency fund. It’s one of the most important things you can have in your personal finance arsenal. Everyone should have enough cash on hand to extricate themselves from a bad or unexpected situation and get back on their feet. Sadly, most Americans don’t have enough saved to cover even a $1,000 emergency, but in a perfect world, I recommend having enough money to cover your expenses for six months, as well as any unexpected expenses you may have throughout the divorce process.
To best understand your finances, it is ideal to meet with a financial adviser, and it’s OK to come with more questions than answers. Ideally, it would be best to meet with a different financial adviser than the one you used with your ex during the marriage. The relationship with your adviser is a trusted one that you can rely on not just during a divorce.
Don’t feel pressured to have all of your financial numbers down to the penny — the goal is that slowly but surely, you’re gaining a better understanding of what your financial future will look like, with regard to your budget, standard of living and retirement accounts.
People have the option to go through this process on their own, and for those who feel well-prepared, that can be empowering. However, as a Certified Divorce Financial Analyst myself, I find that many prefer the support of working with a professional who can help them navigate divorce-related money issues such as asset distribution, taxes and financial planning. A CDFA is a financial professional who helps clients navigate divorce-related money issues, such as asset distribution, taxes and financial planning. CDFAs can help model out how a divorce settlement might impact your finances, offering a clear view of your financial future.
How to Prepare fora Meeting with an Adviser
Before you meet with your adviser, we recommend that my clients try to gather the documents listed below. If you don’t have access to these documents, don’t fret. You can work with your adviser to sew together the quilt of your financial picture.
- Investment account statements showing account values, holdings, cost basis and account titles
- Debt statements showing interest rates and outstanding balances
- Property deeds
- Insurance policies, including the declarations pages for life, health, disability and long-term care insurance
- Property and casualty coverage, including auto, homeowner, renter, umbrella and business insurance
- Tax returns from the last three years
- Prenuptial or post-nuptial agreements
When you’re going through a divorce, emotions often run high, and with children and day-to-day life obligations to worry about, your finances may not be a top priority. However, equipping yourself with the knowledge about your specific financial situation can be empowering, allowing you to navigate the process from a place of understanding and start your new chapter.