For someone who’s been happily married for 15 years, I know a lot about divorce.
I was struck by how much a dear friend fretted about finances during her divorce. I wanted to be able to help her and countless others like her, so I studied for a certification I’d never considered — Certified Divorce Financial Analyst, or CDFA.
Many of my clients are women who hadn’t previously been heavily involved (or involved at all) in family finances. Suddenly, they’re forced to take charge and don’t know where to begin.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
CDFAs can help you understand the long-term ramifications of all the decisions you’re now having to make on your own.
Based on my work with clients going through divorce, I’ve come up with six important steps to take if you find yourself in that position.
This list can serve as a starting point to help safeguard your economic future and embrace your new chapter with a financial plan rather than financial worry.
1. Get clarity on expenses
Focus first on nailing down your essential vs your discretionary expenses. You don’t need to be an Excel whiz; you can use pen and paper to figure out what it costs to run your household.
Go through the last three or four months of checking account and credit card statements. One word of caution: Don’t factor in December, as everyone’s costs are typically higher then.
You want to begin to understand what monthly income you’ll need post-divorce. There are tools that can make the task easier; one I love is Monarch.
2. Assemble your team
The good news, if there’s any to be found in divorce, is that there are professionals who can guide you down the right path. Your team might involve a divorce attorney, although it doesn’t have to. In a collaborative divorce, both parties agree to mediation. That keeps you out of the courtroom and can save you thousands of dollars. If you anticipate a high-conflict divorce, you’ll probably need to litigate and will need an attorney.
I strongly advise including a financial adviser on your team — specifically one with the CDFA designation. That person can help you decide such things as: Is it better to have more alimony up front and less later when you’re trying to get back into the workforce?
I always recommend bringing on an accountant. Tax returns are full of valuable information. If you haven’t been very involved in filing, you’ll want an expert to walk you through your prior return and point out how divorce will change it. Receiving alimony changes your income and could have tax implications.
When dividing assets, you need to consider which you had prior to the marriage and which you acquired during the marriage. What’s most important here is to thoughtfully consider the tax implications of the decisions you make. A CPA can guide you.
Engaging a therapist can help you cope with the stress associated with such a big life change.
If you’ve been a stay-at-home parent who might need to rejoin the workforce — or you’ve been working but now need to increase your income — a career coach can be a wise investment.
There are even realtors and mortgage lenders who specialize in divorce.
You really shouldn’t use your divorce attorney, if you’ve hired one, in any of these capacities. Many people aren’t aware of these other specialties, so they turn to their lawyer with questions about job hunting and real estate … and your lawyer is charging a much higher hourly rate.
3. If children are involved, develop a parenting plan
The divorce process will end, but when children are involved, the family goes on in perpetuity.
A parenting plan should include how you’ll handle college. With 529 savings plans, there’s one owner assigned. Will both of you make contributions? How?
This is also time to discuss logistics. Maybe you’re both willing to pay for in-state tuition. But one spouse might be willing to contribute more for the child to attend a private university if that’s the child’s first choice.
The parenting plan should cover events that might be many years in the future, including who’ll pay for your child’s wedding and future milestone moments.
4. Think long and hard about holding on to your house
This is one of the most common mistakes women make, and it’s understandable. If you’ve got children, your goal is to minimize disruption to their lives. You might think that staying in the home they love will mean stability.
The mistake is in not realizing how illiquid a house is. You can’t unload a house at the drop of a hat.
You’ve got to consider the many ongoing expenses associated with your house — not to mention the expensive surprises that can crop up.
- What if you discover mold?
- What if squirrels take up residence in your attic?
- What if the roof needs to be replaced? That could cost as much as $20,000.
You can count on having to replace something every five years. Your property tax is going to go up every few years, as will your insurance. You’ll need the resources to cover those things.
Don’t allow your admirable desire for stability for the kids to put you in an untenable financial position.
5. There are special considerations if you’re divorcing someone who owns their own business
If you’re married to a business owner, I urge you to get an appraisal of the business rather than just relying on the CFO for the financials.
It’s worth the cost to ensure you’ve got accurate information.
6. Understand that equitable distribution doesn’t mean 50/50
The bottom line
I remind everyone going through divorce that they’re not in this alone. Divorce is hard enough without trying to carry it all on your shoulders.
There are trained experts who want to help you through this. Leaning on them will make this tumultuous time easier and will help ensure that, after the divorce, you get a second chance at happily ever after.
