The Mathematics of Divorce: 6 Steps to a Strong Financial Future After the Divorce is Finalized

Unfortunately, the dynamics of divorcing means one household will soon become two. Depending on your current lifestyle, this can stretch a budget to its breaking point. Fortunately, there are several steps you can take to prepare yourself for living on one income. These steps can be tedious and definitely are not fun, but they make a huge difference in preparing you for your future.

Step 1: Run your credit report:

Running a credit report tells you several things. First, you get your credit score which is an important factor if you are planning on re-financing your residence into your own name. Second, your credit report lists accounts with you as an accountholder on credit cards, vehicle loans, student loans, and mortgages. If any of the accounts look unfamiliar, you may have to do some digging to determine if these are your accounts or if your credit report has errors in it.

Step 2: Draft a list of what you own and what you owe:

Most of what you owe may be listed on your credit report, but there may be additional liabilities. You should compile 12 months of statements for each account. Specifically, recent bank and brokerage account statements for retirement and non retirement accounts, pension statements, Social Security statements, property deeds, mortgage, vehicle loan, and credit card statements, and any other debts such as loans against a 401(k) or personal loans; and the last three years of tax returns at a minimum. In addition, you want to list all your assets in categories of separate property (which is property acquired before marriage, inheritance and gifts), and community property (property acquired during marriage). If you aren’t sure which category to put an asset in, your attorney will help you with it. This probably sounds like a daunting task, but it is one that may put you on the offense instead of the defense in your divorce procedures so it is well worth the time. Also, your attorney is going to ask for this information very early on in the proceedings.

Step 3: Take a close review of your spending:

Tt is important to determine what your current lifestyle is costing you and to categorize the expenses between fixed or discretionary. Ask yourself if all these expenses are necessary or a luxury, especially if supporting two households does not seem possible with the current income of your partner and yourself.

Step 4:  Review your employment goals and potential changes:

Many factors go into determining if you should seek employment, change industries, or return to school for additional education. However, many people do not realize that after a divorce may be the right time to make these changes. It is important to speak with your attorney early in the process about this so he or she can attempt to structure your settlement to allow for these changes. While it is not always possible, it is worth reviewing with your attorney.  

Step 5: Preparing for the long game:

One of the most important steps is to decide what you want your life to look like in 5-to-10 years or even 20 years or more. Many people want to maintain their current lifestyle and do not give their future security any thought. That goal is fine but do not bury your head in the sand and lose your future in the process. One party may want to stay in the marital residence at all costs, but is then forced to sell soon after the divorce is finalized because it is out of his or her budget. Unfortunately at that point, taxes may consume any available profit. Another mistake can be to divide the investments based on similar face value without understanding that different types of investments have different tax consequences. Discuss your goals with your attorney and more importantly, explain why these goals are important to you. With a better understanding of what you want and why you want it, your attorney can often give you several options to either reach your goals and may be able to assist you in developing better ones.

Step 6: Get financial help:

Your divorce attorney will help you as much as possible, but consider hiring a good financial professional to assist you during and after the divorce. A financial assistant helps you to set budgets and savings goals, investment settlement funds in accordance with your age and risk-aversion, and is current on tax laws and consequences.  A financial professional can assist you for many years, long after your divorce attorney has closed your case.

These steps can prepare you for the difficulty of divorcing, give you confidence during the process, and put you on firmer ground as you head into your new future.  While none of these steps are fun or easy, each will assist both you and your attorney in reaching a settlement that puts you in the driver’s seat with a strong financial future.

By: Donna K. Baslee

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