Every month, I offer a workshop to women in my community who are either contemplating or are in the early stages of divorce. The second Saturday of each month, we invite a therapist and a family law attorney to join me and discuss the different dynamics of divorce: emotional, legal and financial. We cover a lot of basics, and what is most interesting is that many attendees don’t even think to get a financial planner involved during the early stages of the divorce process. But, that is exactly when they should be involved.
A well-trained divorce financial planner can help you understand the value and tax pitfalls of your marital estate, help propose or analyze settlement options, assist in completing your mandatory financial disclosure and accurately estimate child and spousal support. When your divorce is finalized they help make sure your settlement is optimized to put you in the best position to thrive for a long, long time.
Many people are intimidated to leave their current situation, even in cases where they know it is an unhealthy relationship because they just don’t know how to plan for the transition. In an emotionally charged and uncertain time, a divorce financial planner is an advocate who will provide a transition plan, and help you follow it.
As a divorce financial planner, my job is to help you plan for three distinct phases of the divorce process:
1. Preparing to separate
Preparing to separate takes intentional emotional and financial planning.
Emotionally, in this phase you are transitioning from identifying as part of the marital unit to becoming independent. This means transitioning to living on your own, organizing your own budget, and spending your time in new ways. In many cases, a therapist can be a helpful and objective third party to assist with the emotional transition.
Financially, your data gathering needs to start here. You should have ready access to all financial statements, online access to accounts, tax returns, pay stubs, employee benefits plans, stock option and RSU plans, etc. I advise collecting this documentation as a very first step. The reason is that in divorce things tend to go “missing” very quickly. You want to be proactive about your preparation — not reactive.
Advice: Before you separate, use joint funds to repair or buy your automobile, pay off bills, or repair your home. Begin your divorce with joint expenses already paid rather than arguing about who should pay them later. Cancel all joint credit cards. You don’t want to be liable for any charges your ex is putting on the cards. Debt is community property as well.
2. Preparing to divorce
During this phase, a divorce financial planner’s job is to analyze. Once you are separated and have made the decision to move forward with divorce you must begin the process by filing initial paperwork. (Hello Divorce helps you with that). Then, you must disclose to each other what your income and expenses are, and your assets and debts. Since you have already done all of your data gathering, this will be the time to analyze which assets to keep and what your support options are, if any. Your divorce financial planner can help you make sense of all the assets you own and, more importantly, help you understand how they can facilitate your transition through divorce and beyond.
Common questions we address are:
- Should the home be sold
- Does it make sense to buy out your spouse, or let them buy you out?
- Should you be positioning for real estate, retirement, or pension assets if you need cash now?
- What are the true values of RSUs and stock options and how can we divide them fairly?
Your tax returns and paystubs are important items to analyze when it comes to child and spousal support. I like to take a more educational approach with clients and collaborate with them, because for some people, this will be the first time that they’ve even looked at such documents in detail.
Advice: Divorce is a cash-intensive process. Once you separate, if you are working, open up a separate account and divert your paycheck into the new account. Make sure you have access to other forms of cash as well (i.e. bank or brokerage accounts, credit cards, home equity line of credit, or 401(k) loans).
3. Life after divorce
Once your divorce is final, it’s time to put yourself first, to ensure you thrive in your next chapter. Your financial disclosures are a planning tool that will help you work with your financial advisor to do just that. The disclosure process provides us with an opportunity to take control of your situation and prepare a plan for your future.
Next, we review your goals. Many people haven’t even set goals, or don’t know where to start, so we work on them together. It may be retirement, a new home, a large move, a career change, travel, taking care of elderly parents… whatever it is, the portion of the marital estate that you end up with will define your ability to fund these goals.
The goal-setting process is an important time to ask yourself more overarching philosophical questions as well. Many of us struggle with forming an identity after marriage because it’s been all about our spouse and children.
Advice: I am giving you permission to start taking care of you! What do you want your life to look like? How do you want to spend your time? What inspires you? How can your money and resources help you live the life you want to live?
We implement your financial plan based on these questions. This includes updating beneficiaries on your accounts, tax planning, retirement planning, analyzing stock options, and updating your estate plan to name a few.
For those of you who are feeling lost and alone, there is hope. I am here to help facilitate and inspire an otherwise less-than-desirable situation, and Hello Divorce is also full of articles and resources that help show you the way.
It was Socrates who said, “The secret of change is to focus all of your energy, not on fighting the old, but building the new.” With the right help and the right planning, the “new” will be easier to build than you think.