The potential financial impact of getting a divorce can be shocking for many people. The uncertainty of supporting two households – with the same income – can be daunting.
The good news? Many people realize soon after a divorce that living without another person actually decreases their expenses.
From the outset, it is important to understand the financial and legal documents that are necessary for your divorce. Then you need to get those documents yourself or you may have to ask someone for them (including your soon-to-be former spouse). Note that you want to be in control of the process – not waiting around for someone else to gather the information that you need.
Lessen The Financial Impact
Here are some ways you can prepare for divorce and reduce its financial toll.
• Negotiate a settlement agreement. To save money and time, you and your ex-spouse may be able to reach a settlement agreement on certain issues. This will help protect your interests without having to go to court for every single issue that arises. If you enter into a settlement agreement, work with your attorney and/or financial advisor to make sure it is in your best interests.
• Use alternative dispute resolution (ADR) methods, such as mediation. Mediation helps parties negotiate key issues and come to an agreement. The agreement is not legally binding until it is approved by the court. Mediation is optimal in divorces where both parties simply want to end the marriage with as little wrangling as possible.
• Establish a post-divorce budget and overall financial plan. It is important that you prepare for your financial life after getting divorced. Consider the following questions: 1) what will be your future standard of living? 2) what are your anticipated future expenses? 3) how will your budget be affected by the divorce? 4) if you receive child support and/or alimony, how will you make ends meet when you no longer receive those payments? 5) do you plan to claim social security benefits? 6) do you need to update your retirement plan?
• Complete a financial audit. Conducting your own audit can help you make major financial decisions. This is especially important if your former spouse has typically handled all the finances. Here are some items you will likely need to gather: 1) tax returns and other income-related documents; 2) real estate documents (deeds, mortgages, etc.); 3) a list of personal property, including valuable items (jewelry, art, cars, etc.); 4) bank account statements, investment account statements, retirement account statements, pension plans, life insurance policies, disability insurance policies, etc.; 5) credit card, debit card and student loan information; 6) estate planning documents (wills, trusts, power of attorney, etc.); 7) business valuation records (business tax returns, financial statements, etc.); and 8) information on other valuable assets.
• Establish your own bank and credit card accounts. Some couples have joint bank and credit card accounts during their marriage. If you do not have your own bank account, it is important that you set up your own checking and savings account, as well as debit and credit card accounts. Also, if you are uncertain about your credit rating, you can request a free credit report. This report will tell you many important things, including whether your spouse has opened any accounts in your name.
• Communicate with a team of experts. You need a team to support you and make sure you are in the best financial position after the divorce. These individuals will also help you coordinate the legal and financial aspects of divorce, thereby reducing your stress. The following three individuals should always be part of your team: a divorce attorney, a financial planner and a tax advisor. In addition, you may want to reach out to the following individuals: 1) a mental health counselor; 2) a real estate broker or realtor; 3) a forensic accountant; 4) a private investigator; and 5) an appraiser (for assets like personal property, business property or intellectual property).
In addition, remember to update your estate planning documents and your insurance beneficiaries when getting a divorce, as well as changing the passwords on all your financial accounts.
The Grand Rapids family law attorneys at Thacker Sleight understand the financial concerns in getting a divorce. Contact us to schedule a time to sit down, talk about your options and create a plan that works for you.