Divorce can be a financial disaster for both parties. However, with good planning you can reduce your financial risk substantially. Here are some planning tips for an impending divorce.
Perform good record keeping – Collect all your financial records. If you are disorganized as a whole, this already difficult job becomes even more difficult. Get copies of all important financial information including financial statements, banking information, tax returns, loan documents, credit card statements, loan applications, titles/registration for your cars, and insurance policies. If your spouse owns a business it’s vitally important that you get the records from the business.
You cannot underestimate how important it is to work on the details when collecting your household financial information.
Stay actively involved in divorce process – It’s very important that you were actively stay engaged with your attorney in whichever process you choose.
Choose the correct divorce process – You and your spouse are in control of what process you choose for the divorce. For the most part, the traditional litigation process is a very expensive endeavor. If at all possible, look for a less adversarial process for getting divorced. Divorce processes like the Collaborative Process and Mediation are typically less expensive and they allow you to maintain better relations with your former spouse going forward.
Increase your cash – As you split into two households your monthly expenses are going to increase. Combine that with the expenses that you will incur during the divorce process and you have a recipe for a cash shortage. So when you’re planning to end your marriage, stay ahead of the curve and start building your cash reserves early.
Plan for future high ticket events – Get ready for your divorce and make an assessment of any future high expense events or future cash windfall. If your spouse receives an annual bonus, wait to separate until he or she receives the bonus. Try to look ahead at least 18 months and determine if you have exposure to upcoming expenses on the car, on the house, for the kids or any other area of your life. There’s a good chance that you will be strapped for cash sometime during the divorce process or after. So work hard to plan out your upcoming expenses and make sure you give yourself a cash buffer.
Manage risk – In almost all divorces unforeseen events occur. Put plans in place for glitches that may occur in your future. It helps to answer difficult questions in advance:
- What happens if your spouse fails to pay child support?
- What happens if your parents get ill?
- What will you do if the stock market crashes?
- Where am I at risk?
The goal here isn’t to scare you, but to encourage you to put plans in place and give yourself a buffer for unexpected events.
Planning your career – If you’re a stay at home parent or you set your career aside for your children, it is critically important that you build a career plan. The earlier you can start on the career planning process the better. If you’re future plans involves college, make plans and understand what your expenses will be.
Talk to the experts – You never expected to get divorced. But now you have difficult decisions to make. It’s very helpful to consult outside professionals to help in your decision making process. This may mean hiring a divorce financial specialist, a forensic accountant, a therapist or some other independent professional to help you with decision making.