by Kristen Hilty
Maybe you’re the one who managed the family finances. Or maybe you were the one that assumed it was all being taken care of. Regardless of your role, the finances of a married couple are vastly different than those of a single or divorced individual.
So what do you need to do now, before you take the next steps toward divorce, to understand your family finances and what your financial future might look like? We’re here to help! Our job as a CDFA® is to help you understand, manage and negotiate the financial aspects of your divorce. Here are 3 places to start.
Step One: Prepare a Budget
Nobody likes budgeting (well, most don’t). But you will be much better off in the long run if you do. So what exactly does it mean to create a budget?
You could grab cocktail napkin and jot down a few random thoughts about how much gas for your car costs or what you think the mortgage – but that’s not going to cut it. If you’re going to get divorced, you need to take this seriously and so it’s time to raise your game.
Think of budgets as being broken down into three sections (we have forms to help you categorize and document each of these on our website):
- Shelter – These are all costs directly related to the place in which you live. Rent, mortgage, insurance, taxes, utilities, repairs, service contracts, lawn cutting, etc. You may think that owning a house or renting an apartment is just the cost of the mortgage or rent but it’s much more. Take the time to think through each of these expense categories and come up with realistic estimates for each. Thinking of renting an apartment? Get the local paper and find out what apartments in your area really cost, Then take it one step further and call the utility company and ask if they can provide a yearly estimate on what it costs to provide service to the apartment you’re looking at.
- Transportation – A big part of what we spend our money on each month falls into this category. Your car payment car insurance, gas, repairs, tolls, license and registration. Find out what it will cost to insure just your car as most companies offer multi-car discounts which will go away once you’re divorced. Also be realistic about the age of your car. If it’s new, then maybe you can go light on the “repairs” budget entry. But if it’s approaching 100,000 miles, each trip to the mechanic can $600 to $1,200.
- Personal & Household – Here’s where you have a lot of control over your budget. This section includes items like food, toiletries, sundries, household supplies and prescription drugs. Also give thought to the cost of health insurance if you’re currently being covered by your spouse’s policy. Then it’s time to consider recreational activities: eating out, vacations, wine (in 2020 this may be a necessity 😊) or tobacco. Add up costs directly related to kids like child care, babysitting and day care. Remember you won’t have your spouse to cover for you if you need to work late or want to go out – it may be sitter time. Finish off with all the feel good stuff like vacation spending, gift giving, charity donations and savings. When you really start thinking about this, you will be surprised at how much money goes into this section.
Step Two: Prepare a Balance Sheet
This part is a bit harder as you’ll need to know what assets and liabilities you have so do the best you can (again, we’re here to help).
On the asset side, you’ll want to know how much your house is worth, what bank accounts you have and their balances, any retirement accounts and their current value, and stocks or bonds you own and any personal property which is worth something like coin collections or furs.
On the liability side, it’s the mortgage and any home equity loans, credit cards, car loans, student loans and back taxes owed.
It’s also important to note whose names all of these are in. Do you have a credit card in your name only as well as a joint account? Is the mortgage in one party’s name but the deed is in both of your names?
Step Three: Work with a Certified Divorce Financial Analyst (CDFA®)
Congratulations! If you’ve completed steps one and two you are well on your way to getting your financial house in order and setting yourself up for success in the long term. But there’s one more step you need to take to make sure you’ve covered and that’s work with a Divorce Financial Analyst.
Sure you’ve been able to pull all this data together but what does it mean? What would a fair settlement look like? These are all questions a Divorce Financial Analysts can help with.
Gathering information can be overwhelming and we can help. Now it’s our job to make sure you understand what it all means for your future so you can make informed decisions.
Questions that will be answered may include:
- Can I afford to stay in the house?
- If I do need to move, how much can I afford in rent?
- Can the kids still keep participating in their activities or will we have to cut back?
- How do I plan on saving for my retirement?
- When will I be able to buy a new car?
Setting yourself up for financial success post-divorce has just as much with information gather before you leave as it does with making a realistic plan for your future. This is where the help of an independent professional can really come in handy.
Don’t Forget To Ask For Help
If this sounds like a lot of work, you’re right, but a little planning can go a long way.
Things are going to change and possibly, quite dramatically. By being smart and recognizing that now, you’ll have time to craft a plan to help you navigate the potentially choppy waters ahead.
Do some legwork; enlist the help of a Divorce Financial Analyst and I promise you you’ll be.