Financial Divorce

The financial divorce includes maintenance, care, child-support and education for your children, personal property, real estate, assets, liabilities, businesses, health insurance, life insurance, pensions, tax issues, alimony and more. You will need to create a comprehensive financial plan that considers all these aspects; the plan needs to be well thought out, designed to meet the needs of the entire family and then properly executed.

Your overall financial plan should include . . .

A Short term plan that will cover your needs while you are going through your divorce you both agree to. Who will pay for what until your divorce is complete? If you can’t agree, you can mediate. 

A Long term plan for your finances as a divorced person? How much money will you need each month to meet your living expenses? Emergencies? Health needs? Children? Etc.

Your long-term plan should cover a minimum of five to ten years, or the amount of time you need to “get on your feet”. The longer you have been married, the longer the window of time should be. Your financial agreement should provide you with adequate finances to survive in your new circumstances and serve as a bridge to a new life and a secure future. 

A Retirement Plan– How much money can you put in your savings every month that cannot be touched? What assets do you need from the marital pie to insure your future? How will you invest for your future so you will have enough money for retirement without relying on social security?

Step 1. Evaluate where you are: 

• Identify your Marital Net Worth. Complete a Marital Financial Statement (*) that identifies all assets and liabilities in order to determine your net worth. Your marital net worth is the difference between your assets and liabilities.

• Identify your income, expenses and liabilities. Create a Comprehensive Budget (*) of all your expenses, liabilities, and “income”. This will enable you to figure out whether you have a positive or negative monthly cash flow. Positive cash flow means that enough money is coming in to pay all of your monthly expenses (and you have enough to invest and/or save for the future). Negative cash flow means that not enough money is coming in to pay your monthly expenses and you are sliding into debt instead of investing and/or or saving for the future.  

Step 2: Determine what would be an Equitable Division of Marital Assets? 

Keep in mind that no one ever gets all of what they want. The detailed work you do to figure out positive and negative cash flow and net worth is essential in determining how your marital pie should be divided up in order for your agreement to be fair and equitable.

If your agreement is going to give you a negative net worth and your spouse will have a positive net worth, then the agreement is not equitable. Also, equal is not always fair if the salaries and/or assets are disproportionate, a fair share could mean more than 50% for one spouse.

It is imperative that you have some idea of how your agreement will play out for you in ten years. If your spouse’s net worth will be doubled and your net worth will be far less, it might be necessary for you to go back to the drawing board. How much will you need from the marital pie to get a jump-start on your new life? It should also be noted that non-monetary contributions such as being a homemaker entitle that spouse to a share in the marital assets.

Is your division of property equitable? A Values Chart (*) is a crucial tool for evaluating what is equitable.   It provides you with a quick, efficient, clear, and concise way to determine if you have mutually divided your marital pie fairly and equitably based on what you both will be earning, the division of your property, and your ability to attain future acquisitions and wealth. It takes the guess work out of it, because the evidence is right there.

Support your financial planning by Getting Financially Literate and Staying Organized

• Key to your financial divorce is to becoming financially literate, so you can understand the legal and financial ramifications of each financial decision that you make.

It is unrealistic to expect one person to cover all the bases for you. Lawyers are not trained in financial planning or tax ramifications that should be figured into your agreement. It might be wise to talk to a financial planner and/ or an accountant who is better trained in these matters.

However, trust your instincts to guide you especially if a professional gives you advice that does not feel right to you. Your hunches just might be right. Stay focused and aware. Most of the bad decisions that we make usually result from not really listening, or being tuned in to what is going on inside us.

• Being organized is also critical. Have originals or copies of assets and other essential information: your bills, tax returns for the last three years, employment checks, mortgage information, deeds, titles, pension information, other assets and liabilities. All that information will be important when negotiating and drafting your agreement.

Keep a log. Write down all your questions as they come to you and research the answers. The more answers you get to your questions, the closer you will get to finding solutions to your problems.  

Keep all this information organized in files/folders in a file cabinet or other safe, reliable and easily accessible place.