Thinking about divorce? Here’s what to do.
OK so you’re thinking about divorce. I get that you are freaking out, stressed, wondering how it’s all going to play out. I’d like to give you some tips on things you can do to help ensure your financial security. People plan for their weddings and you need to plan for your divorce. I’m not advocating things to do to set up a fight or use this time to steal from your spouse but rather, I’ll tell you things you can do to level the playing field so you are in a better position to get what is financially fair and equitable.
I recommend watching my video, available on my website, “Planning for Divorce.” There I have detailed advice on planning for your divorce. Here are some quick tips from that video:
ONE: Meet With a Certified Divorce Financial Analyst. My advice, if we haven’t already, is to meet with me or another CDFA. We can explore what you have done or need to do financially to prepare for divorce and the likelihood of you divorcing amicably and/or settling. If you have a house, pension, IRAs, or other property and debt, hiring a CDFA to structure your financial settlement is a smart financial decision. A CDFA can also help you determine how much is available for spousal support, how much you might need in spousal support and help you determine your past spending habits (your lifestyle) so you know how much spousal support to ask for.
It is definitely a good idea to meet with a lawyer sometime early in the process. I do not advocate immediately signing up and putting down a retainer, but a consultation will help you understand the legal rights you have in your state. Mediating your divorce is considerably less expensive and does not create adversarial situations like hiring attorneys does.
TWO: Take a financial inventory. You have to have an accurate idea of your situation. If you are the spouse who left it all up to your partner, you are going to have to pull up your britches and figure out what all you have. That means you have to find out what are your assets and liabilities.
The obvious place to start is your bank accounts, your credit cards, your house/mortgage and your cars. Next find out if you have retirement and investment accounts. Do you or your spouse have IRAs or 401(k)s or pensions with a current or former employer?
Do you have valuables like jewelry or antiques? Did you own any of it before you got married? Did you receive inheritances or gifts while you were married?
Do you have a safe deposit box or a storage unit? If so, try to get into it as soon as possible and take and inventory and photograph it. Photographing all valuables is a good idea, so you have a record if they disappear. Make sure you have a set of keys to everything, including safe deposit boxes, storage, rental units, and cars.
Next you need to find out your family income. If you have no idea what your spouse makes, you can get this information from past tax returns. If you can’t find copies, then you can request copies from the IRS. Ask for complete copies, not just summaries.
You also need to know what you spend, both now and what you will probably be spending when you are separated. If you have never done this, you need to sit down with your bank statements and credit card statements and create categories and then list every expenditure, month by month. It’s tedious, but you HAVE to do it. For the very affluent, a “lifestyle analysis” can be performed by a CDFA to categorize and summarize your past spending so that you can prove your pre-separation lifestyle for purposes of support.
You are going to need to find out about insurance. Do you have life or disability insurance policies? Where do you get health insurance? Is it through your spouse’s employer? If so, that will only continue for a limited time. You need to find that out and find where you could get your own health insurance so that can be put in your budget. It can be one of the most expensive costs of living.
If you have a mortgage on your home then homeowners insurance and property tax is included in the mortgage payment but if your home is paid for, you need to find out about homeowners insurance and taxes.
THREE: Documentation. While you are working through step one, make a copy or secure the documents you find. One of the worst things that can happen is that you spouse finds out that you want a divorce and the financial documents disappear.
This is also a time to get your credit reports. Reports from all three credit bureaus are available for free once per year at AnnualCreditReport.com. You may find credit cards and bank statements or debt you didn’t know about. If there is credit card debt or loans you didn’t know about but that have your name on them, you may be liable for those.
While you are reviewing your bank and investment statements, pay attention to account transfers. Are they being made to accounts you know about?
Besides statements, you will need to get a copy of the deed to your house, the title, and the warranty. Is the property in your name?
FOUR: Get Some Cash Quickly. A divorce is going to cost money. My process is affordable but you shouldn’t count on your spouse being amicable and if you get into litigation, even if there isn’t a lot of fighting involved, it can get expensive quick. You may also want to have planning consultations with a financial professional or attorney that does not appear as a check on your bank statement or on your credit card statement.
So you need to get some cash. Fast. Do you have access to discretionary cash that you would otherwise spend? Perhaps you can you take a little extra out as cash or make purchases with your debit card and return the items for cash? Saving the necessary amount of cash can be very difficult and you may need to plan it out. Remember half of your family income is yours, even if you don’t work, so you aren’t stealing. You will be required to report this cash once the divorce process starts but your spouse will need to know you have the ability to put up a fight if need be, which might actually promote a settlement. Again you need to store this cash outside the home in a secure place.
FIVE: Begin Building a Wall of Separation. Once your spouse knows you are separating, you need to build a wall and you will need to do it fast.
You will need to change all your passwords and account access codes. Set up a separate email and if you want to receive mail privately, a post office box.
You should remove 50% of the balance in jointly-owned bank accounts and remove your name from the account. This isn’t stealing; it’s to insure you have funds to live and to pay bills so your credit is not ruined. Then notify your spouse in writing.
Work out details on how to pay any outstanding bills. Be careful about any auto-payments before you close any accounts. This is not the time to ruin your credit and you don’t want to be accused of ruining your spouse’s credit.
Consider temporarily freezing all joint credit card accounts until you and your spouse can decide on responsibility for any debt on these accounts. Cancelling credit cards can impact your credit score and you need to maintain good credit through and after your divorce. Call your credit card company and advise them of your situation. Again, be careful about auto-payments from your credit cards. The goal is to extricate yourself as cleanly as possible from the situation so that there is no way for you to be held legally responsible for any new debt which is incurred by your spouse.
In summary, be smart, be willing to put in the work to gather your financial documents and learn about your financial situation and your legal rights. Your outcome will be better and you will put yourself on more equal ground. The best defense is a good offence.