Divorce can be a very stressful and confusing time. Being organized and gathering the information needed to make educated decisions is critical. This transition can also be financially challenging, requiring preparation for the necessary budget adjustments. Gather Important Records When contemplating or beginning a divorce process, one of your most important tasks is to gather the records and documents that will help develop a complete picture of your family’s financial situation. In order for you to make solid long-term decisions about the distribution of assets, the payment of debts and management of the family’s cash flow, it is critical to have comprehensive, accurate and current information. What Records Will I Need?
Although each family’s situation is unique, here are some of the more common records that should be accumulated:
- Income tax returns for the past 3 years
- Most recent paystubs
- Employment contracts
- Statements of employment benefits
- Current statements for all retirement plans and IRAs
- Copies of all stocks, bonds, savings bonds, CDs, stock options, employee stock ownership plans, etc.
- Current statements for all bank or credit union accounts, investment accounts and mutual funds
- Life insurance policy declaration pages & current statements of value
- Deeds to all real estate
- Current statements for all debts
- Vehicle titles and registration documents
- Homeowners and auto insurance policy declaration sheets
- Current financial statements, tax returns, partnership or shareholder agreements for businesses
- Any prenuptial agreements
What About Personal Papers? In addition to financial documents, you should locate and secure in a safe place these important personal papers:
- Birth certificates for the entire family
- Social security cards for everyone
- Marriage license or certificate
- Military paperwork
- Wills, trusts and other estate planning documents that have been created
Get Your Budget in Order Separating or divorcing families almost always experience significant financial strain as they restructure into two separate households. Lifestyles of intact families are usually premised on a single household, often with two incomes. The addition of extra expenses for a second residence can uncomfortably stretch the family’s resources. How Can I Prepare For The Financial Transition? Here are some ways to prepare for this transitional period:
- Develop a budget, listing all expenses. Reviewing credit card statements and check registers for the last year can help in this task.
- Cut non-essential spending by identifying expenses that can be reduced, eliminated or postponed.
- Examples might include dining out, clothing purchases, gym fees, and entertainment expenses. Try to pay cash for any purchases, reducing credit card use.
- Identify your fixed, necessary expenses such as rent or mortgage payments, car payments, utilities, food, medical insurance and expenses, etc.
- Review all outstanding debt to see if some can be eliminated or minimized by transferring balances to lower interest-rate credit cards or loans.
- Try to accumulate a cash reserve. This can be a lifeline if you lose your job or have difficulty receiving support payments. It will also help you fund the cost of divorce proceedings and prepare for a secure financial future.
Summary Separation and divorce can be a scary time emotionally. It can also be a very financially challenging lifestyle change. Preparation and thoughtful budgeting can ease the transition. It is also important to seek legal advice as early as possible to avoid costly mistakes and to help you to plan most effectively for this huge change in your life.