5 Financial Steps to Prepare for Divorce
Billy Peterson- CFP®, CDFA®
1. Prepare a financial inventory
- Make copies of all bank account statements, brokerage statements, IRA’s, annuities, 401k or other retirement plans, life insurance policies and any other financial records. Additionally, make copies of all credit card statements as well as 3-5 years of tax returns- both personal and business.
- Organize this material into a file or binder and keep it in a secure location such a in a safe deposit box or at a trusted friend or family member’s home.
- Make sure to keep it current. As new statements are issued, add them to the file.
- Don’t intentionally hide things from your spouse. This can backfire on you in mediation or at trial.
2. Assemble your team
- Plan to fill 3 main positions: a lawyer, a divorce financial expert and a therapist trained in conflict resolution
- Interview several people for each position until you find the right fit. The skills you are mainly looking for are calmness, intelligence on divorce matters, empathy, honesty, and reliability. Many professionals come off well at the first meeting, but after they secure the retainer check they become unreachable. They might slide your case over to the para legal or junior partner so they can keep looking for new clients. Others can be so hell bent on fighting that your case drags on for months longer than necessary. In divorce, “winning” is not the goal. Resolution is. Nobody wins in divorce – except maybe the team members who keep the billable hours piling up.
3. Open personal accounts
- You will need an operating account separate from your spouse so open a bank checking account.
- Sign up for your own credit card in order to build your credit score and to keep your expenses separate. However, if your name is on any old credit cards you may be liable for any past or future expenses. It is imperative that you remove your name from these cards or close them entirely if the balance is paid off.
- Secure funds for lifestyle needs and to hire your divorce team. How you do this varies by individual but the important thing here is to avoid high interest borrowing if at all possible. Don’t rack up mountains of credit card debt, you might simply sell assets or obtain a small loan from your parents or a trusted friend.
4. Deal with your emotional needs
- The time to vent, complain about your spouse, and relive old wrongs should be specifically ear marked for your therapist. Period. Do NOT use the time with your other team members to go on and on about your loser ex-spouse and how terrible they are. This serves only to cost you more money and keep your thoughts swirling around in the past. The past is gone. Let it be gone. Turn the page to today and what you are going to do now. Today is a gift, that’s why they call it the present.
- Try to avoid complaining too much even with friends. Sometimes well-meaning friends really want us to live in the negativity. They keep us down in the muck because it makes them feel better about their own crappy life. They are constantly wanting the latest gossip and do things like Facebook stalk your spouse in order to keep the dialogue going. The misery for you will continue as long as you feed their desire to “help” with your personal contempt and anger. Avoid these “friends” if possible.
- At the same time, don’t bottle up your emotions. This can lead to further problems down the road. It’s Ok to feel anger, sadness, loss, loneliness, fear and anxiety. Let those feelings have their time but know that they are temporary and a new bright light is out there to lead you on your way to a better place.
5. Adapt to your new situation
- Change your email passwords along with the log-in credentials to your personal investment and retirement accounts.
- Set up a PO Box to receive important mail in order to avoid having it fall into your spouse’s hands.
- Update social media profiles, photos and personal information.
- If you have kids, help them adapt. They don’t want this and hate what is happening. Don’t ever run down your spouse in their presence. They are very impressionable and fragile at this point and will remember things that you say. Don’t force them to take sides or be your confidant. This is borderline child abuse.
- Change your beneficiaries for IRAs, life insurance policies, annuities and retirement plans. However, be careful in naming your minor children as primary beneficiaries. If you died the court would need to appoint a guardian to oversee the children’s assets. This guardian might end up being your ex-spouse and he/she may not be the person you want handling your money. A better option might be to name a parent or close family member with specific instructions as to how to distribute the assets and for what purpose. Creating a revocable trust and naming it as your beneficiary might be a reasonable option but there are some draw backs with regards to forced IRA distributions so talk to your accountant or financial advisor first.
Nearly half of all marriages in the Unites States end in divorce and most of those are contested. This is unfortunate. Divorce doesn’t have to be ugly. It will be a strain and require adjustment for sure. The outcome depends entirely on your preparation, the team you assemble and your emotional state of mind. Start preparing yourself for the best resolution utilizing the 5 steps above before the first round of negotiations take place.