Divorce is a messy, heart-wrenching, and overwhelming process to go through. In the midst of everything you're dealing with, it may be the most tempting time to avoid dealing with money. But it's also one of the most important times to approach your finances head-on. To make it less overwhelming, I've listed five important steps you can take to understand your current finances and manage your financial future.
- Get organized
Make copies of all of your financial statements. While your checking and savings accounts may be obvious, don’t forget to include retirement accounts like 401(k)s, pensions, and IRA's. Also get statements for insurance policies, tax returns, student loans, mortgage statements, and other miscellaneous financial documents. Consider using an accordion file to keep everything organized and easy to bring with you to appointments. Here is a list of documents to get you started.
- Figure out a basic budget
Think of your budget as a tool that helps you spend your money on what's important to you, so you can feel in control and hopefully make more progress toward your goals. Now is an important time to think about how much it takes to support your lifestyle each month, especially as you negotiate your settlement and/or plan how to use it. Look for an online budgeting tool that allows you to both set a budget and to categorize your transactions. This should allow you to see how your actual spending matches your planned spending. Here is a free cash flow worksheet to try, there are also lots of great budgeting programs online.
- Calculate your net worth
Your net worth is everything you own minus everything you owe. This is essential to understand, both to help ensure a fair settlement and to make informed decisions about your future. Start with a piece of paper, draw a line down the middle, and on the top of the left side write "Assets", or "Things I own". On the right write "Liabilities", or "Things I owe". Under assets, list everything you own; assets like your house, cars, bank accounts, investment accounts, cash value life insurance policies, and other personal property such as jewelry, art, and furniture. Under liabilities, list everything you owe. This includes your mortgage, car loans, student loans, credit cards, and any other lines of credit. Note the amount of each debt, where it's held, and the current interest rate.
- Get your credit report and know your score
You can get a free credit report from three different reporting agencies by clicking here. Your report includes all your debts (even ones you've paid off), current balances, payment history, and recent inquiries. Make sure the balances are correct, and that there are no loans you're unaware of. What you see in this report shapes your credit score.
Also take the time to get a current credit score. Your score affects your ability to qualify for loans (such as a mortgage or auto loan) and your interest rates on future and some current loans and credit cards. It may also affect your ability to qualify as a tenant. If you have a low score, working on that ASAP could save you some stress and money as you move forward.
- Seek professional and legal advice
Legal and financial professionals can help you understand the possibilities and potential outcomes of the different options you're facing. Experienced professionals can go beyond the numbers and also help you clarify your personal goals and personal values. This could help you make decisions that benefit you in the long term.
Look for someone who is competent in their field, willing to take the time to explain things, and listens well. Make sure you feel comfortable with the person; it doesn't matter if they're good at what they do if you won't feel comfortable going through this intimate journey with them. Here are a few professionals you may find helpful during and after divorce:
- Divorce Attorney and/or Mediator can help you understand and complete the legal settlement, and custody arrangements if you have children. (If your partner is more financially savvy than you, or you don't expect them to "play nice" be VERY wary of working with a mediator only. You'll want someone representing YOU in the process.)
- QDRO Attorney may be needed if you need help splitting qualified retirement accounts
- Financial Advisor can help you create a budget, understand your retirement accounts, review your beneficiaries, and plan for your financial future.
- Insurance Agent can help you evaluate your new insurance needs including life, auto, homeowner/renters, umbrella, and health insurance.
- Estate Planning Attorney can help you create a will that reflects your new situation.
- Accountant can help you understand the tax ramifications of your settlement, and also with filing when it comes to tax season.
- Real Estate Agent and/or Mortgage Lender can help you understand your options if you have real estate you'll be splitting.
Have questions? I'd love to chat with you on the phone and provide a free, no obligation consult, so call or email me.