Financial impacts are inevitable when it comes to divorce. If at all possible, prior to filing, it’s best to consider how the divorce will affect your financial health and lifestyle. Start by getting a full understanding of your current financial picture and then consider how that might change once the divorce becomes final. Your financial picture can be outlined with just three simple categories—what you own, what you owe, and your cash flow!
- What items and assets do you own?
Assets you own could include real property such as your home or land, personal property (including cars or other personal belongings like clothing and jewelry, furniture, art, etc.), and investments or savings which may be retirement accounts, bank savings, checking, brokerage accounts, stocks, bonds, insurance, or annuities.
Make sure you know how the assets and accounts are titled and the current values or balances of each. Gathering statements is a great place to start for investments or savings accounts. For assets that are less liquid (e.g., your home) it may be a bit harder to get an accurate estimate of value without additional expertise or an appraisal.
- What debts or liabilities do you have?
Similar to outlining your assets, you’ll also want to understand any debts you have. A good way to capture this is by running a credit report or gathering statements for any credit cards, car loans, mortgages, student loans, etc.
- Cash Flow
Cash flow is simply a term used to describe the difference between the inflows and outflows of cash. Positive cash flow means you have more income than expenses and negative cash flow means your expenses are more than your income (usually resulting in debt).
Start by documenting your income which can come from various sources. This could be income from employment, social security, pensions, annuities, trusts, real estate, dividends and interest, etc.
Next, review your living expenses. It’s helpful to look back at the last 12 months so that your expenses capture items that may not occur on a regular monthly schedule. For example, you may have monthly bills that are fairly consistent. However, there may also be other amounts for travel, home maintenance, health events, etc. that occur less frequently and can easily be overlooked when simply thinking through a monthly budget.
Summary:
Once you’ve outlined your current financial picture, take time to consider how these factors may change as a result of divorce. Will your living expenses increase or decrease? Will you need to improve your income to cover the difference? Are you likely to pay or receive spousal maintenance or child support? Are there certain assets you desire to keep more than others?
Of course, the finer details will be determined as part of the formal divorce process, and often divorce results in compromise vs. ideals. However, having a solid understanding of where you’re at today and thinking through possible future scenarios, will make you better prepared for any negotiations. Financial wellness is key so remember, it’s better to prepare than repair!
