I picked up the phone the other day to speak to a potential new client, and she cried, 'I'm panicked!" She had left her career to be a stay at home mom of three small children, the couple had been talking about divorce for a while, and the husband is the primary breadwinner. I mediated a case yesterday in which the husband was the stay at home dad and the wife is the primary source of income for the family. He is nervous about his financial future but moving forward with hope.
All of my clients are apprehensive and scared of the changes that a divorce will bring. These tips will focus on financial concerns when a couple is facing divorce. Often only one spouse was involved in handling the finances in the marriage (paying bills, budgeting, investing) and establishing relationships with the family accountant, attorney, and financial advisor.
1. Assemble a good team of advisors -- Find a good certified divorce financial analyst (CDFA). Financial analysts help to assess every aspect of your financial life -- including savings, investments, insurance, taxes, and retirement -- and help you develop a detailed strategy or financial plan for meeting all of your financial goals. Your CDFA may also be skilled in advising you on business valuation if either party owns a business or on financial forensics. Sometimes my clients together hire a divorce financial neutral who works collaboratively with them during the process of mediation.
You will need to find a neutral mediator if you are mediating your divorce and a lawyer to review any agreement that you may reach and with whom to consult during your divorce negotiations, You may also need to consult with an accountant, a real estate appraiser, a therapist, and a parenting coordinator if there are children.
Worried about how to pay for a team of advisors? Ask for a no charge consult before you commit to working with and paying a CDFA, mediator, lawyer, accountant, and/or therapist. You want to make sure that all of the advisors who you are hiring will be a good fit and will be affordable. Negotiate sharing the cost of your neutral mediator, divorce financial neutral, and real estate appraiser with your former spouse. And if you do not have the financial resources to hire a CDFA or similar advisor, do not worry. Many couples do not have a complex financial situation that might benefit from and require a financial analysis. A neutral mediator will help to empower the divorcing couple to negotiate splitting of assets and liabilities without hiring a financial analyst. Moreover, health insurance will cover much of the cost of a therapist and/or parenting coordinator, if needed.
2. Organize your financial documents and record your monthly expenses -- Set up an organizational system if you don't already have one in place so that you have easy access to all of your utility bills, mortgage statements, car loan documents, credit card statements, joint retirement and bank accounts, tax returns, homeowner/car/liability insurance statements, appraisals of valuable items, and all other important financial documents and records. Estimate the net worth that you and your spouse have accrued.
It's important to understand what all of your specific monthly expenses are so that you know what monthly income you will need for the future. You will want to create a budget for future income and expenses. Save your receipts and track all of your monthly expenses with an easy to use money management program such as Quicken or Mint.
3. Update insurance and beneficiaries -- if you have health insurance coverage through your spouse's plan, you will need to investigate new coverage options and change to a different health insurance plan once you are divorced. Contact a health insurance broker if employer-based health insurance is not an option. A broker can help explain different benefit packages and costs. Review and update beneficiaries on your various insurance policies and financial accounts, as well as who has legal authority to make health care decisions for you on your medical proxy document. If you had joint car, valuable articles, and liability insurance or any other joint insurance policies, set up your own separate insurance policies in your own name. Update your will. (You may need to consult with a lawyer who specializes in wills, trusts, and estate planning.)
4. Hold off on major financial decisions for now -- Don't make impulsive large financial purchases, switch jobs, or move to a different geographic location at this time.
5. Review and monitor your credit report and check your credit score -- Close your joint bank accounts and open accounts in your own name. You don't want to be responsible for the spending and debt of your spouse once you've decided to divorce. Obtain a new credit card account in your own name. Protect your credit score.
Ellice Halpern, J.D., is a Virginia Supreme Court certified general and family mediator.