By Garrick G. Zielinski, CFP, CDFA
Divorce Financial Solutions, LLC
1. Gather all necessary information & make copies:
In many divorce cases, one spouse generally assumes the responsibilities of maintaining the household's financial foundation, leaving the other spouse to the household's up-keeping responsibilities. During the marriage, this may seem to be a convenient partnership, but in a divorce, this tends to leave one spouse unaware of what the other spouse is doing with respect to finances such as: income, expenses, investing, credit cards, loans, family business, etc. If you are contemplating divorce, the first step you should take is to gather all financial information and make copies. It is amazing how documents come up missing once divorce is being discussed between spouses.
Getting these documents through an attorney at a later date can be quite costly. You want to have them up front, whether they're originals or copies. The types of documents you want to have are your most recent: bank statements, credit card statements, investment account statements, retirement account statements, loan applications, last three to five years tax returns & W-2's, property tax bills, mortgage statements, credit report, etc. In other words, anything that has bearing on your financial situation.
2. Accumulate some cash:
Depending on the type of divorce you may go through, the process can be potentially expensive. Once you are beyond contemplating divorce, start to save some cash each week to accumulate some liquid funds. What you know is you want a divorce, what you don't know is how this divorce will affect you financially. Not only will you need some liquid money to live on, but you could need to hire legal representation, financial experts, and/or mental health professionals to guide you through your divorce and serve as your advocate.
Establishing some cash is a necessity because you will need to pay these people in the event you need use them. Some divorce professionals will not work for you without a down payment, and the last thing you want to happen is not to be able to hire someone because you haven't planned properly.
3. Determine the type of divorce you will have & mentally prepare for it:
Not all divorces are the way they are portrayed on television, roughly 5 percent of divorce cases go to court. Not all divorce cases require hiring an attorney. In the state of Wisconsin, nearly 65-70 percent of divorce cases are Pro-Se, which means without legal representation. You want to have an idea of what type of divorce you will have and mentally prepare yourself for the costs.
In my experience with divorcing clients, a litigated divorce tends to be the most expensive regarding fees. If you are in an amicable divorce situation, you may not need to seek the legal support that you would in a highly litigated and disputed case. You may only need assistance with the financial aspects of your divorce. If finances are the only areas of dispute, than seek assistance from a divorce financial analyst, and after those issues have been resolved they can refer you to an attorney that will draft your settlement agreement. This saves time, money and provides for a better relationship with one another post-divorce.
There are other areas of dispute that require other professionals in a divorce. For example, let's assume that you and your soon to be ex-spouse have no real issues except placement of your children. This is a perfect opportunity to seek guidance from a child specialist and/or mental health professional to determine what scenario's are best suited for your children. Then after you come to an agreement find an attorney to review and draft the legal documents necessary to finalize your divorce.
Divorce is emotionally detrimental, the last outcome you need is for it to be financially detrimental as well. You don't want to go into the process blind and each end up with a $20,000 legal bill, when your only issue pertained to dividing retirement accounts, for example. Do your research and find out what professionals you need to minimize costs.
Here is a list of your divorce options:
- Legal Separation best used for couples that do not want to finalize divorce for various reasons (i.e. religious, health insurance, child support, maintenance, etc.)
- Pro-Se best used for couples with few disputes, few assets, and no children
- Mediation best used for couples who have issues to settle, but no reasons to go to court (i.e. financial issues, custody issues, placement issues, etc.)
- Traditional best used for couples that are non-cooperative and want to fight
- Collaborative best used for couples with assets, children and disputes that are seeking an amicable divorce and guidance through a team of professionals (attorneys, financial specialists, mental health professionals, etc.) that assist them through a mediation-style process
- Cooperative best used for couples with assets, children and disputes that are seeking an amicable divorce and a team of professionals that assist them through a mediation-style process
Determining this will give you an estimate of what a divorce may cost you.
4. Make a detailed list of assets, debts & monthly income before your first consultation:
After you have determined the type of divorce you will go through, prepare your current financial position and have it ready for your first meeting with a divorce financial analyst. This step will save you time and money. The more detailed you are, the more cost effective it will be for you. You also want to make sure that you have an understanding of your monthly expenses as well as income. One area that is commonly argued, is the household expenses incurred by each spouse. On your detailed list show actual expenses that can be supported by credit card and/or bank account statements. Numbers don't lie, and these documents can serve as a support item for negotiating proposed settlements and property division.
Knowing what your spouse earns in income is equally important when divorcing. You need to know all sources of income from: bonuses, cash under the table, exercised stock options, what they are deferring into retirement accounts, etc. Previous years tax returns and W-2's will have this information.
5. Choose the right type of financial professional that can give you expert advice:
When selecting a financial professional, be certain they have an area of expertise in divorce financial analysis and divorce financial counseling. Some financial professionals hold themselves out as divorce planners, but have ulterior motives such as booking new clients for asset management or tax preparation purposes. Look for the CDFA, CDP and/or CDS credentials. These credentials assure you that your financial professional is credible and competent to deal with the financial aspects of your divorce. These designation's mean that your financial professional has taken the necessary tests and acquired the education to hold themselves out as a divorce financial planner.
There are many advantages in retaining a divorce financial professional, some of these benefits are: financial analysis conducted early in the divorce process can save time and money, it can also help you avoid long-term financial pitfalls pertaining to divorce agreements, they can assist you in developing detailed household budgets and help avoid post-divorce financial struggles. Most importantly, they can reduce the amount of apprehension and misunderstanding about the financial aspects of the divorce process.
Certified Divorce Financial Analysts also provide other valuable information such as: tax consequences, division of retirement plans, continued health care coverage, stock option elections, debt reduction and much more. They can work with you individually or by collaborating with your attorney to help make financial sense of proposed settlements.
In my succeeding article I will focus on the different types of divorce, and the pro's and con's of each process. That article will explain the unique differences and help you to decide which type is of divorce process right for you.
Content provided by Divorce Financial Solutions, LLC. For more information about divorce financial counseling and analysis, contact: (414) 294-4755.
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