How To Prepare Financially For A Divorce

divorce financial planner

Divorce can stain finances as well as emotions. Both parties are trying to determine financially what life is going to look like after the divorce is finalized.  It is also more common than not that in a marriage one of the spouses assumes the role of paying the bills and managing the family's finances. In this arrangement the "non-financial spouse" is now forced very quickly into the role of understanding their total financial picture.

• How much income do they need to meet their living expenses?

• Where are all of the marital assets located?

• How much debt do they have?

• How much should they expect to receive or pay in child support / alimony?

• Who is responsible for paying the bills while the divorce process is ongoing?

Step 1: Establish a team of professionals........

Since so many important financial decisions are being made in such a short window of time, we strongly recommend that each spouse surround themselves with a team of professionals that they like and trust. That team of professionals usually consists of an attorney /mediator, accountant, therapist, and a financial planner. Even though the divorce process can be stressful and sometimes scary, surrounding yourself with a knowledgeable team of advisors will help you to better understand your current situation, the options available to you, and to help you better prepare for life after the divorce is final.

Step 2: Identify your assets and debts.............

You need to fully understand your current financial situation before you can begin to plan for your income and expenses going forward. First, make a list of all of your assets, their values, where they are located, and how they are owned (jointly or separately). This can usually be accomplished by gathering statements on all of your accounts.

You will also need a list of all of your debts, the name of each creditor, outstanding balances, monthly payments, interest rates, and how each debt is owned (jointly or separately). This information can typically be obtained by requesting a credit report for both you and your spouse.

Step 3: Create a new budget...............

Before you can figure out how much income/support you will need going forward you need to know what your estimated monthly expenses are going to be once the divorce is finalized. We recommend listing all of your monthly expenses and list separately large one-time expenses that are expected to be incurred in the future such as college expense for the kids or a down payment on a house. Once you know your estimated monthly expenses you can work with your financial professionals to determine how much income/support you will need each month to meet those expenses taking into account taxes, inflation, and an assumed rate of return on your assets. Please feel free to utilize our GFG Expense Planner which is located in the Resource section of our newsroom.

Step 4: Develop financial projections............

Remember, the financial decisions that you are making now during the divorce process will most likely have a dramatic impact on what your financial future will look like. Not all assets are treated equally. Some assets are taxable while others are not. Likewise, you may have access to certain assets now to meet current expense while others assets may not be available until retirement.

The goal of these financial projections is to determine what your financial future may look like next year, 3 years, 10 years, and 20 years from now given the financial decisions that are being made today. There are a lot of variables that need to be considered when creating these projections such as assumed rates of return on current assets, annual contribution amounts, taxes, social security, inflation, and debt. We strongly recommend that individuals work with financial planners that specialize in divorce planning to develop these projections.

Having formal income and expense projections in place will also allow you determine how changes to what is being offered during the negotiation process will impact your financial future.

Step 5: Crossing emotional and financial decisions

It is not uncommon for individuals to have an emotional attachment to a specific marital asset. The two most commons assets that we see that fall into this category are the primary residence and pensions.

We see many situations where one spouse has a strong emotional attachment to the house and they become completely focused on doing whatever it takes to "keep the house". But there are certain circumstances where from a financial standpoint that keeping the house is just not a viable financial option. Couples can underestimate the financial impact of divorce. While married, a couple's total income was being used to maintain a single household. Now that same level of income will need to be used to maintain two separate households which usually comes at a greater overall cost. If projections can be produced early on in the divorce process showing that keeping the current house is just not a viable option, it may remove that addition stress of fighting over an asset that cannot be financially maintain by either spouse.

Disclosure: The information listed above is for educational purposes only. Greenbush Financial Group, LLC does not provide legal advice. For legal advice, please consult your attorney.

Michael Ruger

About Michael.........

Hi, I'm Michael Ruger. I'm the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.