Divorce is an emotionally challenging experience, and the process can have a profound negative impact not only on the couple involved, but also on their family. And getting divorced can be financially painful, as well – especially for women. Studies have shown that even women with substantial assets suffer financially during and after a divorce. Fortunately, there are things you can do to make the process easier. That’s why we have put together the following divorce financial advice for women.
Organize Your Documents
It’s often helpful to develop a simple system to organize your documents, so that if your attorney, accountant or other advisor ask you for information you can easily retrieve it. Some experts suggest grouping related documents together, to avoid missing any important information. For example, you could keep all of the paperwork related to your home together – the deed, purchase documents, mortgage statements, property tax records, and such. This can help ensure you’ve got all the details you need when determining how to divide assets.
What You Own and What You Owe
As part of the divorce process, you’ll likely be dividing with your ex-spouse. So, you’ll need a clear picture of what your assets and liabilities are. If you’ve not been very involved with the household finances during your marriage, you’ll need to spend some time getting informed, so that you’re not at a disadvantage during negotiations.
Here’s a partial list of documents you’ll want to gather together:
- Recent bank and investment account statements, for both retirement and non-retirement accounts
- Pension and Social Security statements
- Life insurance statements
- Deeds for properties, like your family home and any vacation or rental properties
- Mortgage, car loan and credit card statements
- At least two years of tax returns (and five to seven years if you own a business)
Need guidance financially preparing for or navigating a divorce? Contact our team at Springwater Wealth today to learn how we can help.
Understand Your Finances
You Don’t Have to Call It a Budget
Gaining an understanding of your finances is one of the most important steps you can take if you’re thinking about divorce, or are currently in the process. And the place to start for that is with a budget. For many people, the thought of preparing a budget is about as appealing as a root canal. At Springwater, we sometimes avoid the term “budget”, and instead ask our clients to review and understand their household “cashflow”. But regardless of what word you prefer, it’s the foundation of a solid plan for your financial future, and essential to financially preparing for a divorce.
If you’re not familiar with the family finances, the task of creating a budget may prove to be a bit of work. You’ll probably want to become familiar with the current family financial picture first, and then look ahead to the future and ask yourself what will change.
If you plan to stay in the family home, the changes may be small. But if you’re planning to move, your entire budget may be very different.
Current and Projected Expenses
The easiest place to get started is with your fixed expenses – things that you know won’t change much from month to month or year to year. This would typically include your mortgage or rent and property taxes; utilities like gas/electric, water, phone and cable; and of course, groceries.
After you’ve listed all of your core living expenses, you should turn to your variable expenses – the things that perhaps aren’t essential, but still show up during most months. These would typically include entertainment, dining out, periodic minor home repairs, shopping and clothes.
Finally, you’ll want to look at some larger, infrequent expenditures, and make sure that you’re accounting for them, too. If you have kids, how will you pay for the cost of their education? When will you need to replace your appliances? What about the roof on your home, or your car?
Of course, your expenses are only one half of the financial picture. It’s also important to have a clear understanding of your income sources. Where will the money to live on come from?
You may have employment income, spousal support for a limited or undefined period, or income from a pension, investments or real estate.
Finding a Balance
Once you have a clear view of your expenses and your income, you’ll compare the two. Hopefully, your income is greater than your expenses, and you have a surplus most or every month. Unfortunately, in many cases after a divorce there’s a shortfall.
This isn’t unusual, and it shouldn’t be totally surprising. Divorce generally takes the income and expenses of one household, and then expects that income to support two households. If that’s the case for you, some financial creativity is required.
Look first to reduce your variable expenses. What can you eliminate or cut back on? After you’ve gone through that process, and still find there’s a shortfall, you’ll want to take a hard look at your fixed expenses to see if they’re really all “fixed”. For example, can you downsize your home, which can lower a number of your monthly expenses, like mortgage/rent, property taxes, and utilities?
At the same time that you’re reviewing all of your fixed and variable expenses, you should also see if it’s possible to increase your income. If you’re not working, could you return to the workforce, even on a part-time basis (at first)? And if you’re already working, are there opportunities to move to a higher-paying position?
Can you improve the performance of your investments, and generate more return for the same level of risk? Are your investments too conservative, given your risk tolerance and investment horizon? Reviewing your investments is a great way to financially prepare for divorce.
Finally, you should project forward how you think your income and expenses will change over time. If you have kids, you’ll want to include education costs. Ask yourself what’s important to you, and what you’d be comfortable changing. By setting your priorities, you’ll be better able to follow a spending plan in the future.
For most people, personal finances are never easy, and divorce simply makes things even more complex and complicated. While you may be fortunate to have caring family and friends providing you with well-meant advice, the best source of guidance will be a professional financial advisor, preferably one with experience providing divorce financial advice for women.
An advisor will be able to help you use your financial information, your goals and your priorities to build a financial plan that resonates with you. And having a personal financial plan is one of the best ways to financially prepare for divorce.