Divorce poses many challenges and potential upheaval to those going through the process, from the emotional pain of ending a relationship to the financial anxiety of living as a single individual. In this post and the next post, we will focus on how individuals going through divorce can reduce some of the concerns related to financial issues.
Divorce involves not just division of property, but also spousal and child support. To adequately prepare yourself for these issues, you will need an accurate and complete assessment of your financial status. To do this, begin collecting all of your documentation.
First up: earnings. Pay stubs, W-2s, income tax returns, stretching back for at least three years. If you can collect copies of these items and put them together neatly, you will have material that your lawyer will need and courts require for discovery.
Next: cash and investments. Begin copying all of your bank statements for every joint and separate bank account – checking, savings and investment accounts, including pension plans from work and 401(k) plans.
Now that you have covered liquid assets, move to big non-liquid assets like your home, your car, large furnishings, boats. Collect copies of warranty deeds, lease agreements and purchase agreements. With respect to the home, check with the recorder of deeds to see if you have any encumbrances you did not realize – a mechanic’s lien, an additional mortgage, or anything that might prohibit clear title.
With assets out of the way, research your liabilities.
First, collect paperwork of all loans – your mortgage, your auto loan or lease agreement, any loans taken out for personal reasons, including home equity lines of credit.
Second, collect all credit card statements going back three years. This will help you determine if your spouse may have made large purchases of which you were unaware but may still remain responsible for paying back.
Now you have a solid idea of your net worth, your key assets and debts, and what you find most and least important to keep in the division of property. Knowledge is key as your first step toward security – you do not want to enter a situation where you have too little information about what you own or what you owe.
Next up: a rough idea of monthly income and expenses. What are your recurring expenses – mortgage or rent, food, clothing, utilities, phone, cable. You want to try as early as possible to get a handle on how much you need to survive every month and whether you have enough cash on hand through income to do so.
So far you have covered a great deal of ground – you have the power of knowledge and the benefit of paper documentation you will need for the actual divorce process.
In the next post, we will discuss other tips to help keep you proactive with regard to your finances during divorce.