Creating Financial Stability in Divorce
How in the world will I make it?” stuttered Norma. She stared at her list of finances for the divorce mediation appointment.
The debt column loomed—mortgage, car payment, student loan, 3 credit cards. Though there was some equity in the house, it didn’t even begin to cover the debts. Looking at her pay stub, she wondered again. “How will I ever make it?”
Many contemplating divorce share Norma’s dread. Most couples find it difficult to support one household on their income. Now the same income must stretch for two houses.
Even harder, Norma and John rarely discussed finances during their marriage because it always caused a fight. Now, they had to agree on budgets, assets, and debts just to finalize the divorce. How could she possibly know where to begin?
Norma, and all those going through divorce, need to know how to prepare. Collecting key information helps couples craft decisions that create stability and provide for both homes. Areas to remember include:
Area 1—Track monthly expenditures.
Americans hate budgeting. Even worse, the heavy use of automatic payments has both increased couples’ debt and decreased understanding of where their money goes. Tracking expenses proves critical in divorce. Spouses must know how much they will need to live in order to understand options and plan for future security.
More, when couples try to make decisions in a vacuum, conflict escalates. Creating a budget leads to an understanding of concrete numbers. Concrete numbers define possibilities and help ensure couples work together toward viable options.
Norma really wanted to keep the house for the children, but her budget showed she couldn’t. Though initially hard to accept, once Norma found housing within her budget—her overall anxiety about the divorce eased. Budgeting moved her from overwhelmed to prepared.
Area 2—Establish/protect credit ratings.
Everyone entering a divorce should run a credit report to learn their score–and their spouse’s. Their score will impact the availability of credit, interest rates, and other options available after divorce. Taking the time before filing to address any errors and to establish personal credit facilitates life after the divorce.
Area 3—Gather key financial data.
Couples should gather:
- at least three years of tax returns
- one year of bank records
- one year of investment and retirement account summaries
- one year of credit card statements
- the most recent loan statements–i.e. mortgage loans, student loans, personal loans, auto loans, etc.
- documentation on any other asset–equity in the home, market value of the home, value of significant assets such as jewelry or art, etc.
Because John had primarily overseen the finances, Norma needed access to all these documents to fully understand their financial picture. She chose to review these with a financial professional so she could effectively make decisions. John’s efforts to provide concrete documentation increased trust between them, which created more productive discussions.
Armed with an understanding of all their assets and debts, couples then need to decide which framework they will use to evaluate their choices. Couples work together best when they adopt a mindset of “how do we use our marital resources to ensure we are both financially secure after the divorce?” When couples have children, this focus is even more critical. Spouses move from demanding their “rights” and into thinking cooperatively about how to focus on the best future for everyone.
Area 4—Open separate accounts.
Caution–marital assets should not be transferred without at least the permission of the other spouse and more appropriately as part of the financial decisions in mediation.
At the same time, opening separate accounts begins the process of establishing separate financial identities. Spouses begin to mentally wrap their minds around making independent decisions. Separate accounts also facilitate implementing financial decisions during the process.
Area 5—Consult financial professionals.
Financial decisions in divorce shape the rest of life for each spouse. Understanding investment options, long-term pictures, and tax consequences all prove critical to making the best use of marital resources. Money spent on professional advice now proves invaluable to lifestyle later.
Norma entered mediation terrified of the finances. Once she gathered the relevant data, created a budget, and sought professional help—she discussed options confidently. She and John created an agreement that moved both into the stable future they needed.
If you are contemplating divorce, The Resolution Center offers couples a proven, practical way to negotiate the financial hurdles and create financial stability for both homes. For more information, please email info@TheResolutionCenterIndy.com or call 317344-9740. We are here to serve you.