If you’re preparing to divorce, you are not alone. Between 40% and 50% of marriages end in divorce, and for people over 50, the divorce rate has doubled since 1990. While divorce is often a jarring experience, it does not have to be a devastating one.
One of the key things we tell clients undergoing a divorce: emotions often have financial impact. Especially during the period before a divorce, it’s important to recognize when you might be acting impulsively and to reign that in.
For high-net-worth couples, the process of splitting up is often more complex and the consequences higher. Getting a clear, accurate view of your finances can take more effort and require help from a financial advisor. However, this often pays off in that it gets you closer to the life you want after you part ways.
If you know divorce is inevitable – or even a legal separation – I suggest the following:
1. Consider the timing. If you or your spouse is expecting a large bonus from work or other large monetary distribution in the near future, that would be considered community property if you’re still married during the payout. Another example: if married for more than 10 years you may be eligible to receive Social Security benefits on your spouse’s earnings. And then there’s health insurance, especially if you’re in your 50s and 60s and can stay on your spouse’s plan until you’re old enough for Medicare (age 65). Of course, nobody should stay in a bad situation simply for the money. But if the divorce is amicable, it might be worth postponing, if financial considerations like these can ease the transition.
2. Create a net worth statement that lists your assets and liabilities and start gathering financial records. Make sure you account for all property — financial, real estate, valuable objects and collectibles, business interests, etc.. Note if it is separately or jointly owned. And review the content of any safe-deposit boxes. All this will help in deciding who gets what.
A recent survey shows that 56% of married women let their husband handle the family finances. If one of you has been in charge of most or all of the finances, there can be surprises: unknown retirement accounts, other hidden assets and debt, and changes to beneficiary designations. Examples of financial records that you must review: all bank statements, investment account statements, credit card and loan statements, pay stubs and income tax returns. Make sure all taxes have been paid.
3. Start building a budget. It’s important to document everything and keep track of your expenses. Start building a budget so you know how much is spent on household expenses, food, clothing, transportation, and especially how much is spent for the kids, if any. This will help a judge determine how much, if anything, should be given in spousal or child support.
It’s especially important for stay-at-home parents to provide good records of their living expenses, as this will help build a case for alimony/support.
4. Save more. Going through a divorce can be expensive, both financially and emotionally. Attorney fees, therapy, court fees and new living expenses add up, so it’s a good idea to start putting aside more funds to cover these costs. This might mean spending less and saving more or putting some of your existing financial resources in reserve, depending on your situation.
5. Don’t let your emotions let you do anything rash. Divorce can be a confusing time; try not to make it more complicated. Get good legal and financial advice before making dramatic changes, such as moving out of the house, quitting your job, making large purchases, taking on additional debt, or giving away assets that are jointly owned (even though you may not realize they are).
6. Plan for life after divorce, especially if you have younger kids. Providing a stable environment for the kids is one of the most important parts of a divorce, and everyone involved is going to be looking out for their well-being. Spouses who take on primary custody lean toward staying in the house so there is less disruption. There can be a lot of benefits to doing so. But make sure you’re considering the cost of maintaining a property on a single income. For some, it might be best to agree to sell the house and relocate to something new that is comfortable and more affordable.
Some single parents have the financial means to maintain a healthy lifestyle but will need to adjust to a different level of income. Others may want to relaunch a career or go back to school for additional training. Either way, the focus should be on helping everyone move ahead with their lives in the most productive way possible.