Divorce Financial Planning | Middlesex County, NJ
Divorce financial planners can explain financial options, help set priorities and lead clients through the hard choices ahead.
Planning for the future is an essential part of every divorce settlement. Separating or divorcing couples often face a major financial transformation. The bottom line is that two households must now survive on the same dollars formerly supporting one. Typically, if financial planning takes place at all, it’s after the divorce, when financial planners help individuals take stock of their finances and move forward.
Divorce financial planning, however, takes place at the start of the process when individuals first choose to go their separate ways. With early entry into the process, divorce financial planners can provide the comprehensive and accurate financial information necessary to reach a workable agreement. Uniquely qualified to make long-term financial projections, divorce financial planners integrate the methodology of financial planning directly into the divorce process.
Since settlements are in large part financial, divorce financial planners can explain options, help set priorities and lead a client through the hard choices ahead. Often, the financial data on which settlements are based is unreliable, which can lead to future problems for one or both parties. Divorce financial planning increases the accuracy of financial information so that both parties achieve workable settlements quicker and accept realistic lifestyle changes when necessary. Settlements achieved with the help of a financial planner are less prone to problem or error.
How to Plan for a Divorce
Getting Married Can Be Expensive, but Try Getting Unmarried
Now that the vacation suitcases are put away and the children are back in school, it may be time to start planning for something that you may have been putting off—a divorce.
Divorce is a huge step and not one to be taken lightly due in part to its enormous emotional and financial ramifications. But as the economy continues to improve, more couples who have postponed their divorces are likely to pursue them.
National U.S. divorce statics are pretty lousy. There is no reliable central database and some states, most notably California, don't even count the number of divorces annually. That said, the reported number of divorces runs at about 40% of marriages. In 2011, for instance, there were 877,000 divorces and 2.1 million marriages, according to the National Center for Health Statistics.
Whether it's the seven-year itch or you're just plain unhappy and you feel it's time to make a change, there a few things you need to consider before you file.
1. Know What You Own and Make Copies.
Gather as much information as possible, as early as possible, regarding your family's finances. As a divorce progresses, documentation becomes more difficult to locate.
Begin by making a list of assets, debts and sources of income. Try to obtain at least three years of tax returns. Gather employee and retirement-benefit information and insurance documents. Make copies of everything.
Start tracking expenses, if you haven't already. The more information you collect, the better. There will be a point in the divorce where you'll have to review your cost of living. Create a record of all valuables such as jewelry, art and collectibles. Take photos, as sometimes these items can 'disappear' in a divorce.
It is advisable to sign up for electronic statements for all of your individual accounts so that your spouse can no longer see these by opening the mail. Also, be sure to change your individual account passwords so that your spouse isn't tempted to log in to your accounts.
Don't hide money, though, as it gives rise to dishonesty and fraud, and it will be discovered in divorce.
If you have reasonable grounds for concern, seek legal advice for how to preserve your financial assets before filing for divorce.
2. Save and Budget.
One of the most overlooked aspects of divorce is budgeting.
Decide how much you will budget and which accounts will be used to pay for your divorce expenses. Try to avoid tapping into the "wrong" accounts to pay for it. Taking money out of an individual retirement account, for example, may cost a penalty and taxes.
You'll need liquid funds for legal costs and possibly for a separate living arrangement, and money for daily expenses. You should have at least three months' expenses plus several thousand more saved for your attorney's retainer.
Keep this cash in separately titled checking accounts, money-market savings and short-term CDs rather than any long-term investments. You'll also need to create a budget to support your likely scaled-down lifestyle. Most people grossly underestimate how much they spend.
After the divorce, you may end up with half of your previous assets but be spending the same amount as before. Start thinking about the life you want to lead post-divorce and determine what steps you might need to take to achieve that.
3. Watch and Establish Credit.
Get an individual credit card if you don't have one already, and consider freezing joint credit cards. Obtain a credit report for yourself, as a credit report will detail balances outstanding as well as open and closed lines of credit. This can be critical in the event a spouse tries to retaliate by running up credit balances. It can also determine if your spouse has opened accounts you are unaware of.
4. Watch the Timing.
Try looking to file your divorce in a year when you're earning less money—for example, when you get no bonus or there is a big decline in the value of your investments. While a court will typically look at income over many years, having a recent decrease in earnings may lower future payments, such as alimony.
5. Consider Selling the Family Home.
It can be a mistake to try to keep the marital home. While there's often a strong desire to keep it, especially when children are involved, a home is an expensive asset to maintain. Maintenance, taxes, homeowners-association fees and insurance all add up quickly. Consider whether you'll realistically be able to afford the home post-divorce, especially if your ex-spouse died, became disabled, lost a job or couldn't make alimony payments.
6. Look into Alternatives.
Explore various options for divorce resolution, as litigation isn't the only option. It's expensive and you have the least amount of control.
Consider other methods of getting help during your divorce, such as mediation, arbitration and collaborative divorce, depending on your situation.