Divorce can be not only an overwhelming disruption of your personal life, but can also cause overwhelming financial disruptions if you are not prepared. Though it might be difficult to focus during such a volatile personal time, it is important to act early and decisively to financially plan during the early stages of separation, in order to save time, money, and emotional distress later.
If you are contemplating a separation or divorce, take these five steps now:
1. Assess and Build Your Personal Credit
Obtain and review your credit reports from the three major credit agencies — Experian, TransUnion, and Equifax — along with a free credit report from AnnualCreditReport.com. This step enables you to prepare for any surprises, such as debt incurred by your spouse on a joint account for which you are liable.
After assessing where you currently stand, begin establishing or building upon credit in your own name. Stay-at-home spouses can establish credit based on the household income, which must be done prior to divorce while that household income still exists.
Set up credit card, savings, and checking accounts in your name and start setting aside cash reserves. These cash reserves will enable you to pay an attorney, other professional services and unexpected expenses during your divorce process. Having this financial freedom will help you avoid signing a divorce settlement agreement that is not equitable or one that does not meet your needs due to your lack of financial resources.
2. Establish a New and Private Mailbox
Now is the time to stop sharing online passwords with your spouse. Create a confidential, personal email account and PO Box address, and do not allow your spouse access. In place of a PO Box, you can also have your mail sent to a trusted friend or relative’s address. This will enable you to communicate sensitive information privately with your attorney, certified divorce financial planner, financial institutions, credit agencies, etc.
3. Gather and Copy Documents
Secure your own copies of all relevant financial records, and keep them in a safe place that your spouse cannot access. This will ensure that such papers don’t mysteriously “disappear” during the divorce process, and that your spouse can’t raid joint accounts unobserved.
Duplicate insurance policies, real estate deeds, check registers, tax returns for the past three years, money market accounts, CDs, wills, premarital agreements, and promissory notes. You are entitled to copies of all asset and liability statements, such as bank, investment, retirement plan, mortgage, auto and student loans, and credit cards.
If a business is involved, ensure that you copy business appraisals, tax returns, financial statements, 401(k) and pension summaries, loan applications, bonuses, buy/sell agreements, exercised stock options, and contributions to retirement accounts. Unfortunately, cash under the table is difficult to document.
If you are employed by a company, retain and copy your last several pay stubs.
4. Take Inventory
Create an inventory of all your valuables, such as art, jewelry, collectibles, furnishings, furs, and motor vehicles. Take photographs of everything to more thoroughly document. Make sure to check your attic, basement, storage facility, and safety deposit box to create a comprehensive inventory.
5. Assemble a Top-Notch Divorce Team
Having a team of quality divorce professionals can put you in a strong negotiating position with your spouse so that you achieve the best possible divorce financial settlement.
Aside from having an experienced divorce lawyer to be your legal guide throughout the divorce process, you should also have a seasoned, Certified Divorce Financial Analyst who will develop realistic financial projections and ensure that emotions don’t cloud your judgment. Together, they will help you make informed decisions that can produce positive results.
By taking these five steps now, you will launch a divorce process that offers you the greatest opportunity to make intelligent decisions and secure your financial future.
Financial Divorce Plan is a division of InSync Financial Group LLC, a registered investment advisor.
Loretta Hutchinson is a member of the DailyWorth Connect Program. Read more about the program here.