Divorce in your future? Take these 7 steps to prepare

Advice from a CDFA and financial advisor

By Mark Yatros

 When Brittany and Andrew gleefully walked down the aisle in 1997 to the sound of cheering relatives and friends, neither anticipated the eventual end of their marriage. Now, more than 25 years later, the couple is untangling the tight bonds they’ve tied over the course of their union.

In addition to the emotional aspects of divorce, Brittany and Andrew are preparing to separate the financial aspects of their lives. With a quarter century of income, investments, savings, loans, property, and expenses to account for, they have a lot to consider.

As a Certified Divorce Financial Analyst® and financial advisor, I guide clients in the midst of a divorce, working with their attorneys to come to settlements that are fair for both spouses. If a couple – or even one-half of a couple – begins to anticipate the end of their marriage, there are 7 steps I suggest they take to prepare for divorce.

1.     Account for all your assets and liabilities

First, to split your finances, you must know what you have. You should gather all documents that pertain to the following categories. Then, make a detailed spreadsheet listing each asset or liability, its’ value, the account number, and the financial institution’s name and address.

Be sure to account for all:

• Assets – checking, savings, investment accounts

• Property – home, land, businesses, vehicles

• Debts – mortgage, credit cards, lines of credit, vehicle notes

• Household expenses – insurance, phone, internet

• Retirement accounts – 401(k), IRAs, pensions

 As you collect all financial documents, also gather:

• Information on all insurance

• A list of all assets and debts you brought into the marriage

• Recent pay stubs

• Three years of income tax returns

2.     Know what bills are due and when

During your marriage, every financial account may be joint, but one thing that is never combined are your credit scores. Even if you’ve only borrowed money together, each spouse has their own credit score. So, it’s vital to protect your credit during divorce by paying bills on time. Be sure to keep a record of what bills you pay and how much you pay as the information may be considered by a judge when splitting your assets.

3.     Track your expenses and anticipate future ones

As a soon-to-be single person, you’ll want to create an individual budget, so you’ll know where you stand financially. First, determine the cost of your basic needs like housing, food, utilities, transportation, and utilities. Then, figure out how much money is left each month after you pay for your basic needs, and you’ll have the basic info you need to create a budget.

 A simple budget formula calls for 50% of your income to go to your basic needs, 30% to go to extras, and 20% for savings and paying off debts. If you don’t already, begin tracking all expenses, so you have a complete picture of where your money is going.

For a more expansive look at creating a financial plan for your new life, read this blog: “Budgeting After Divorce.”

4.     Open financial accounts in your own name

If all your financial accounts are joint with your spouse, now’s the time to open accounts in your name only. Even if your divorce is amicable now, you should have access to your own funds should it turn contentious. Give yourself options by opening a checking account and one credit card in your own name.

5.     Don’t make important financial decisions

Because you know you’ll soon be on your own financially, it can be tempting to begin moving on, but it’s best to wait on major financial decisions. Any major purchases you make may become joint property and will be considered in the divorce. Also, don’t change insurance beneficiaries or your will without getting the court’s blessing.

6.     Create an emergency fund

It’s always wise to have liquid savings equal to at least three months of expenses (six is even better!), but when you’re divorcing and preparing to be on your own financially, it becomes more important than ever. As soon as you open a checking account in your own name, begin depositing a portion of your paycheck into it each month. It may take some time to save enough cash for up to six months of expenses, but every little bit puts you closer to your end goal of additional security in case of an emergency.

7.     Get assistance

Divorce is complicated, and the decisions that you and your spouse make during the divorce process will impact your finances for the rest of your life. You need someone who is on your side and can look out for your finances.

 It is often helpful to bring a Certified Divorce Financial Analyst® onto your divorce team. CDFAs have a financial background – many are also financial planners – and undergo intensive training to become skilled in analyzing all aspects of divorce. A CDFA will work with your attorney so your financial interests are looked after during your divorce.

Allegiant Wealth Strategies has two Certified Divorce Financial Analysts® on staff: me and Carissa Hagen. As CDFAs, Carissa and I can assist you with:

• Conducting a financial analysis, so you have a clear understanding of your financial separation.

• Avoiding a long-term negative impact on your finances resulting from any agreements you make with your soon-to-be ex-spouse.

• Creating a budget for your new financial life.

• Reducing the stress and misunderstanding of the divorce process and how it all impacts you financially.

 Carissa and I are here to work with you and your attorney during your divorce. We aren’t a substitute for a lawyer but an addition to your team who has one job: Looking out for your best financial interests.

We’d be happy to meet with you to see if we’re a good fit to help you through your divorce. Contact us at 269-218-2100 or here.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.