A divorce can be devastating emotionally and financially. It tears a family apart and can make friends and family members feel forced to choose sides. What may have been a loving relationship sometimes turns into an acrimonious one at best. If your marriage is rocky or you have already begun to discuss the big "D" word, there are some things you can do to be better prepared if you decide to go forward with a divorce. In this situation, money is very powerful and can be used as weapon.
And who gets what of the property you have accumulated together? Understanding your rights is important and they could be different depending on where you live. You may need to enlist the help of professionals to help you and your spouse sort things out.
The net worth statement is going to be very important for you. Be sure it is up-to-date and has all the family assets listed. If a divorce has been looming in the background for a while, you may need to play detective here to be sure your spouse has not begun hiding assets or income. You may be able to play detective on your own, but a new field called forensic accounting has popped up because spouses try to hides assets. Your lawyer or accountant can help you find a forensic specialist who will be able to search for hidden assets.
Know what your spouse owns in their name and what you have in your name. What assets did you bring to the marriage? What assets did he? What assets accumulated during your marriage? How much is in the retirement accounts? You may be eligible for some of the retirement account if you have very little or none in your own name. If you have the larger retirement account your spouse may be entitled to part of that. Who owns the house? Stock options are often overlooked because a spouse may not be able to exercise them for several years, but they are still an asset and need to be included.
Is there a family business involved? This is always tricky because it may be the largest family asset. You want to obtain an accurate evaluation. If you plan to divorce and have been active in the business, how will this affect the business? Does he buy you out? Do you buy him out? Is there cash available to do that?
If you have a joint brokerage account, you may wish to notify the broker in writing that you and your spouse have separated and that all transactions need two signatures. Check with your lawyer on this one as well.
What are your liabilities? Car loans, 401(k) loans, a mortgage, credit cards? Do you have more debt than you have assets? Do you live in a community-property state, or have you ever lived in a community-property state while married? These states use the concept of community property, and each spouse has a 50 percent interest in assets acquired during a marriage.
Next on your to-do list is to evaluate the cash flow. What is coming in for income each month? Where does your money go each paycheck? How much income will you need to stay in your present home? What can be cut back or eliminated if you and the kids will only have your income for a while? Is there enough of an emergency fund to see you through some bumpy times? Do you know how much your spouse earns? Does he get bonuses? Stock options? What's in their benefits package?
If you are not working right now, what will you use for living expenses if he's not as generous as you believe he should be? Can you start to look for a job and find childcare if necessary? If you currently have only a joint checking account, open one in your own name as well. You may need the joint account for household bills and so on, so don't close it just yet, but don't put any more money into it either.
Record the essential household expenses; you will need these numbers to negotiate for child support and alimony. Don't forget things like healthcare expenses or added insurance costs once you are divorced. Accuracy counts; neatness does not!
Make copies of everything. With tax returns, go back three years or more (five is better). If your spouse is hiding assets, the tax returns may provide a paper trail. You not only want a copy of the list, you want to get your hands on everything on the list and make copies of the most recent statements for all of your financial accounts. Make copies of pay stubs, benefits statements, and pension and retirement accounts. Make sure you have easy access to these documents during this crisis period.
Credit and Debt
If you and your spouse will be negotiating debt, you need to document whose debt it was. Take a look at what debt you are carrying that you can eliminate so your cash flow is manageable. If he/she gets the car, then he/she gets the car loan that goes with it!
You want to review your credit history, so send out requests to the credit-rating services for copies of your credit history. You'll want to see what the major credit agencies have on file for you. What happens to the mortgage if it is currently in both your names but only one of you will live there and make the payments? What's the liability involved? You will want to have a credit card in your own name. Get that established as soon as possible. Then you'll want to cancel the joint credit card accounts you have with your spouse. As a word of caution, creditors won't cancel an account until the balance is paid off, but they will close off the ability to post additional charges to the account.
This article has been excerpted with permission from the book Everywoman's Money, Financial Freedom, published by Apha Books. Copyright © 2001 by Dee Lee. Dee Lee is a Certified Financial Planner, a Registered Investment Advisor, and the author of several financial books. Her weekly column appears in the Boston Herald, and she is often consulted as a financial expert for TV and radio stations across the U.S. A regular contributor to CNBC's Power Lunch, she has been featured in The Sunday New York Times and quoted in many national publications.
For more articles on separation and divorce process, visit www.divorcemag.com/article/Divorce_Settlement_Preparation/.
Certified Divorce Financial Analyst
Business Valuators / CPAs