Organizing Finances for Divorce
Americans don’t do finances well. We are told to bank an emergency fund totaling six months of expenses. Over half of us have less than one month’s in the bank. Thirty percent of us don’t save at all. Less than 35% of us have a monthly budget that tells where our money goes. Is it any wonder that broken finances are a leading cause of divorce?
Ironically, filing for divorce may be the first step for getting finances in order. Because the divorce will address every asset, debt, and future household budget–couples must intentionally plan their finances. This intentionality produces financial health. Here’s how to start.
Create a monthly budget
Create a budget for the monthly expenses of wherever you will live after the divorce. If you are staying in the marital home, start tracking expenses now–and account for those that will stop when your spouse moves out. If you will move, ask the apartment complex or realtor for a list of utilities for the new property.
As you compile your budget, try to include as many known categories as possible–
- fixed monthly expenses (rent/mortgage, utilities, insurances, loan payments, memberships, prescriptions),
- variable monthly expenses (groceries, personal care, pets,), and
- general family items (school expenses, camps, recreation, vacations).
If you don’t know where to start, utilize online budget templates for a guide. Estimate high. It’s better to spend less than you planned than more.
The monthly budgets will clarify whether each spouse can support their separate houses. This impacts decisions on maintenance, child support, and payments out of larger assets, such as retirement plans, to equalize the burden.
List assets and liabilities
In Indiana, marital property includes everything brought into the marriage and everything accumulated during the marriage–whether asset or debt. The presumption is that both will be evenly split, but there is a lot of room for adjustment based on the living situations of each person. The budget proves key to determining how to best invest the marital assets to create financial stability for both households post divorce.
Information brings clarity. To create the best financial outcomes for both households, start with a list of all the assets. This includes but is not limited to:
- pension plans,
- bank accounts,
- real property (land, houses, condos),
- significant personal property (cars, campers, art collections, jewelry),
Confirm that you have included everything by collecting the last three years taxes to ensure both people understand all the income and assets available for setting up life in independent houses.
Just as with assets, you need a list of ALL the debt:
- school loans,
- car loans,
- family loans,
- credit cards,
- and so forth.
What if the debt overwhelms the household budgets? Mediators and attorneys work hard to help couples devise a plan for paying the debt while ensuring financial feasibility for each house. If that proves unworkable, couples may need to consult a bankruptcy attorney to guide decisions related to the debt. Timing can make all the difference in the long-term effects of bankruptcy, so getting this advice as soon as needed proves crucial.
Create a vision for life post-divorce
Define as concretely as you can the life you want after your divorce.
- Where do you want to live?
- What job would you like?
- How much will you travel?
- What hobbies will you pursue?
- What new interests will you add?
Benefit 1–this vision brings hope in the midst of loss.
Benefit 2–this vision informs your financial choices.
It can be easy to think we must have the house for the sake of the children. Or, that losing part of our pension plan dooms future security. With a big picture in mind, it’s easier to see which assets truly are crucial and which can go.
If we want to show our children the world, maybe a smaller house with less maintenance and a lower mortgage works better than the current house. If we want a different job, we need a portion of the pension plan to fund schooling. If we just want to move on, letting go of some assets important to our spouse may be the ticket to getting to the life we want.
Because Americans don’t do finances well, they can be overwhelming in divorce. Get to the basics. Create a budget. Know your assets and liabilities. Develop a vision for the life you want. As you put concrete numbers on paper and measure these against the life you want, a plan emerges. A plan that utilizes the resources of the marriage for the future stability of both.
If you need help working through any element of divorce, The Resolution Center stands ready to help. Please call us for a free consultation to see whether we might be able to serve you.