Divorce can be emotionally difficult, especially when children, pets and other loved ones are involved in the split. Dividing up assets can add another level of stress. As any experienced divorce attorney will tell you, even the most amicable breakups can devolve into unpleasant legal battles as both parties lay claim to assets they jointly acquired over the course of their marriage.
That said, a messy financial disentanglement isn’t inevitable. If you’re facing the prospect of a divorce, one of the best things you can do for yourself is to get your financial house in order. Doing so will put you in a better position to negotiate with your soon-to-be ex and make the case for what’s reasonably owed to you. It won’t guarantee an amiable parting of ways — especially when you factor in the many other complexities of divorce — but it can help you reduce financial stress at a time when the rest of your life is in a state of transition.
Here are four steps to help you get started.
Step 1: Collect Your Financial Information.
Take stock of your situation. Do you have access to all of your accounts? If so, carefully document balances and detailed transaction histories. Do you have reason to suspect your partner has kept money you jointly own in accounts you do not have access to? Document any concerns and suspicions so you can discuss them with your divorce attorney.
Some of the assets you’ll want to consider are obvious:
- Your primary house and any other real estate.
- Other substantial personal property — cars, boats, etc.
- Personal savings, retirement accounts with current employers and other investment accounts.
Other types of assets are less obvious:
- Retirement accounts still held with past employers.
- Family money or assets brought into the marriage.
- Business assets (and income) if either spouse is a business owner.
Additional documentation that can be important to help you accurately identify all income, accounts and assets include:
- Recent tax filings, real estate deeds and car registrations.
- Records to document income, like recent pay stubs or business balance sheets.
- Your credit report.
- Documents associated with any other form of current or future income, like Social Security, pensions or annuity income.
Just as important is to clearly identify all debt and the monthly payments associated with each loan. This includes any outstanding mortgages, car loans, student loans and credit card debt.
Personal possessions, from electronics to furniture to jewelry and everything else that belongs to you and your spouse, should be accounted for, with a reasonable valuation placed on each.
Step 2: Work With Professionals.
With so many changes about to take place in your financial life, now is the time to identify and lean on experts for help.
- If you and your spouse are hoping to limit legal bills and think you can amicably split your assets, you may want to consider a mediator. As a neutral third party, mediators can help you negotiate an agreement on the splitting of assets and other arrangements (often including the custody of children) and avoid protracted litigation, which could save you significant time and money.
- If mediation is not an option, seek out a well-regarded divorce attorney to handle your legal affairs. Note that you and your spouse will need to find separate attorneys to represent your respective sides of the proceedings.
- It is also prudent to involve a qualified financial adviser who can assess your financial position as a couple and then help you transition into the new realities of your life today and in the future. In many cases, each spouse may want to have their own financial adviser.
- It may also be worthwhile to enlist the support of an ERISA (Employee Retirement Income Security Act) specialist to help assure the division of retirement savings plan dollars is equitable and done correctly to avoid tax penalties.
Step 3: Prepare to Make Some Tough Decisions.
Deciding how to split financial accounts can be fairly straightforward. “Real assets” — such as your family home, other properties you may own and treasured personal possessions — are another story. Such items can be the source of the greatest disagreements between divorcing couples, simply because most of them can’t be split in half.
Perhaps the most sensitive topic is your primary home. A key consideration is whether the home was supported by one or both of your incomes. It may be too expensive for one of you to afford to stay there. Another issue is how much of your net worth is tied up in the home. Is it even possible to split assets equitably if one of you ends up with the house? Will the spouse who keeps the house be able to “buy out” the other spouse’s interest in the home without adverse financial impact overall?
This decision can be especially complicated if young children are involved, as there can be a natural desire to maintain some normalcy for them during a time of change. Nonetheless, it’s important to make a rational and pragmatic decision about your primary home. Depending on your circumstances, selling the home may be the most practical solution, as it could allow the proceeds to be split as part of the overall division of assets.
Step 4: It’s Not Too Early to Start Updating Your Financial Plan.
As you move through the divorce process, it’s important to determine a realistic budget to live on once you are on your own. If you and your spouse are parents or guardians to minor children, you’ll need to factor the cost of caring for them into your calculations and how that will impact child support payments made by either party.
As your divorce is finalized, you will also want to begin making a financial plan for this new phase of your life. Key components of a financial plan include:
- Emergency savings to meet immediate, unplanned needs.
- An investment strategy designed to meet short- and long-term goals (e.g., a new car, vacation, home remodel).
- A realistic retirement strategy that takes taxes into consideration.
- An estate plan.
- And if applicable, a college savings plan for your children.
These elements may look very different than they did when your finances were combined with your former spouse’s. Although you may have mixed feelings about that fact, one silver lining may be that you have the opportunity to manage your money with more control and command — and build toward the goals that are most important to you.
Your future starts now, but you don’t have to navigate it alone. A financial adviser can help you work through your divorce and create a plan that will help you confidently enter the next chapter in life.
Ameriprise Financial and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser. Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Marcy Keckler is the Senior Vice President, Financial Advice Strategy and Marketing at Ameriprise Financial. She leads the overall strategy for financial advice at the firm, including the Ameriprise Client Experience and Confident Retirement programs. Marcy has been with Ameriprise Financial (formerly American Express Financial Advisors) for more than 25 years in a variety of positions in financial planning, marketing and interactive development.
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