By Ashley Bleckner, CFP®, MA
Going through a divorce can be one of the most difficult times in a person’s life. While experiencing the emotional and psychological impact that often accompanies a divorce, there are critical financial actions that need to take place during this relatively short time frame. Here is a list of specific steps to take when going through a divorce. By doing these five things, you can avoid costly mistakes.
Gather and organize information – This is the most important first step. I’ll warn you, it’s not fun, but gathering all the “facts” is imperative before making all the decisions that must be made.
-While going through a divorce, you will need to prove your financial position through documentation. These types of documents include: tax returns, statements, trusts, prenups, liabilities, insurance policies, and property information.
-How are things owned? What was owned before marriage and after marriage? What was inherited? Make note of this for all your assets.
Understand both your pre-divorce and your post-divorce cash flows.
-Look at how your budget has/will change after the divorce; specifically, your income (all money coming in) and your expenses (all money going out). No matter what your income and expense situation was during the marriage, it surely has changed after a divorce. Getting a precise understanding of what your income is and what your new expenses are is important.
*According to Dr. Richard Peterson’s research, ex-wives typically endure a 27% reduction in their standard of living, while ex-husbands enjoy a 10% increase in their standard of living.
Find a trusted team of professionals
- Attorney – You have several different options when it comes to your attorney. Ultimately, ask good questions to decide if they are a good match for you. You will be spending a lot of time with them during the process, so it’s important to find one you trust. You also need to decide if mediation or litigation is best for your situation.
- CPA – If you do not have a good CPA, now is the time to find one. CPAs can help ensure the division of assets is equal considering tax implications. There has been a lot of tax changes and a good CPA can account for these ahead of time, so there are no surprises later.
- Financial Advisor – A good financial advisor acts as the catalyst to your team. She/he will not only optimize your personal financial situation by collaborating with your trusted advisors to find the best solutions for you, but they can also work with you on a personal level to understand your goals and how you can achieve them. During this time of change, a good financial advisor will highlight how alimony, child support and other financial decisions can impact those goals and account for them moving forward.
- Emotional Support – Some divorces are amicable and are the best decision for both individuals. Others can take longer than expected and become a pricey endeavor. Regardless, all parties in a divorce (at one point or another) often have feelings of being overwhelmed due to the emotional toll it takes. A very private relationship involving money and family is now a public affair. This level of emotion can make us act in ways we normally would not or never have in the past. Taking care of yourself is priority #1.
Update information – Things have changed, and people live in separate homes now.
-Update addresses on needed documents.
-Separate your accounts and memberships. This often means opening your own checking account and credit card.
Keep your focus – It’s OK to feel overwhelmed and frustrated. It is not OK to give up! The goal is to push forward and make a little progress every day while ensuring you avoid the big mistakes, like big purchases or sales. If you’re thinking of making one, wait a couple days and revisit it. Also, check with your team of trusted advisors to help you navigate these decisions. It’s important to be aware that you are at a heightened emotional state.
Every divorce is different, but after years of seeing couples struggle through this difficult time, these basic checklist items are a great place to get started. Please let me know if you have any questions or would like to talk through a marital change in your life. We are here to help!
 Peterson, R.R., 1996. A Re-Evaluation of the Economic Consequences of Divorce. Am. Sociol. Rev. 61, 528–536.