Divorce can be an emotionally and financially challenging experience, impacting the lives of millions of men and women each year. As a Divorce Coach and Certified Divorce Financial Analyst, I understand the importance of financial security during this time of transition. To help you navigate the complexities of divorce and protect your economic well-being, I want to share ten essential points to consider. Each issue is illustrated with real-life stories that exemplify the significance of these financial pitfalls (names are changed to protect privacy).
Build a Financial Safety Net
When divorce proceedings begin, expenses can quickly escalate. Legal fees, court costs, living expenses, and other financial obligations may strain your resources. Start preparing early by accumulating funds to weather these challenges. Let me share the story of Jane, who wisely set aside a portion of her income in a separate savings account before initiating divorce proceedings. This financial safety net provided her with much-needed stability during the process. Note here Jane was not hiding funds. She knew that divorce could get expensive quickly and wanted to ensure she could afford the professional support she needed.
Educate Yourself and Seek Professional Advice
Divorce is a complex journey that demands careful preparation. Before diving in, consult legal and financial professionals specializing in divorce matters. Educate yourself about your rights and options. Let me share the experience of Sarah; she had not worked outside the home in 18 years and did not manage the family’s finances. Sarah proactively sought expert guidance to explain her options. She also diligently researched divorce-related topics from vetted resources and avoided those that weren’t positive. With knowledge, Sarah could make informed decisions that protected her financial interests.
Maintain Detailed Financial Records
Documenting financial information is crucial during a divorce. Secure copies of tax returns, financial statements, banking information, loan documents, insurance policies, and other relevant documents. Trace the history of your assets, such as inheritances or gifts, to establish their separate status. Sarah’s story comes to mind again, as she meticulously organized her financial records with the template we put together, providing her with a solid foundation during negotiations. Understanding her financial situation allowed her to assess what she could and couldn’t live with post-divorce instead of guessing whether she would be ok.
Uncover Hidden Assets
Do not overlook any assets—remember, you are entitled to your fair share. Conduct a thorough review of safe deposit boxes, bank and brokerage accounts, employment records, retirement plans, insurance policies, and other potential sources of hidden assets. Make sure they are addressed in your settlement agreement. Stella was sure her ex-husband was not disclosing all the stock options his employer awarded, so she ensured their agreement accounted for her receiving half of any non-disclosed assets. When her ex cashed out the stock options three years later, it became evident on his tax return, and she received her share – a tidy six-figure amount.
Understand Tax Implications
Make informed decisions by considering the tax consequences of various choices during divorce. Should you opt for monthly alimony or a lump sum? Is it more advantageous to keep certain assets or sell them? John overlooked the tax implications of keeping his 401k while his ex received their brokerage account. His portion was taxable and inaccessible unless he paid penalties until he turned 59 1/2. Seeking advice from a knowledgeable accountant could have helped him make better-informed decisions.
Empower Yourself Through Knowledge
Active participation in divorce proceedings can expedite your recovery and instill a sense of control. Educate yourself on legal matters, collaborate with your ex-spouse, and stay focused on practical issues. Ruth’s experience beautifully demonstrates the power of taking an active role in negotiations. She worked directly with her ex-spouse and their professional team using the Collaborative Process. They experienced less conflict and expense and achieved a goal-based settlement acceptable to both.
Balance Finances and Emotions
During a divorce, it’s essential to acknowledge emotions and understand how they impact financial decisions. Try to maintain clarity of perspective and view your attorney and CDFA as professional advisors, not your friends. Instead, get appropriate emotional support from mental health professionals, trusted friends, or family members. Laura accepted a settlement far less than she was entitled to because she did not adopt a dispassionate approach; later, when she was more clearheaded and wanted to revisit her agreement, it was too late without taking her ex-husband back to court at additional expense.
Advocate for Your Needs
As women, we often prioritize the needs of others, even during divorce. However, divorce is a time for self-advocacy. Insist on what you need and deserve, whether financial support, equitable division of assets, or fair child custody arrangements. Rebecca secured a more stable future for herself and her children by asserting her need for additional education as part of her settlement so she could earn a sufficient income.
Take Control of Your Life
Amidst the turmoil of divorce, aim to regain control over your life. Embrace proactive strategies to address challenges and worries. Seek support, maintain a positive mindset, and take charge of the decisions that shape your future. Rusty had spent much of his marriage “at the office” in avoidance of his unhappy home life, which left him absent from his children. Post-divorce, he built a brighter future and strong relationships, actively taking responsibility for his interactions with his children.
Prepare for the Unexpected
Preparing yourself mentally and financially for unexpected circumstances is crucial during a divorce. Consider worst-case scenarios and develop contingency plans to ensure your well-being and your children’s. By rehearsing the what-ifs and coming up with contingency plans, you will likely be able to handle whatever comes your way.
Divorce is a challenging journey, but you can navigate it successfully with the proper knowledge and guidance. Seek the assistance of trusted professionals, empower yourself with knowledge, and prioritize your financial security. Avoiding these financial pitfalls can set the stage for a brighter future beyond divorce.