Preparing for a Divorce Financially

Facing the prospect of divorce can be overwhelming, especially when it comes to finances. Whether you're contemplating a separation or already navigating the divorce process, it's crucial to prioritize your financial well-being. You need practical advice and actionable steps geared toward preparing for a divorce financially. From understanding your assets and liabilities to planning for alimony and child support, this article explores all the aspects of financial awareness needed during divorce.

The Importance of Financial Awareness During the Divorce Process

By Sarah J. Jacobs, Family Law Attorney

Talking about money can be difficult even under the best of circumstances, and for what we anticipate is a large part of the population, divorce likely does not qualify as "the best of circumstances."

But building awareness of your finances, both in terms of what they are now and where you want them to be, is critical to both understanding your choices during divorce and meeting your goals for life after divorce.

What Do We Mean By Financial Awareness?

When we talk about "financial awareness," we're talking about having a comprehensive understanding of your financial situation, including all assets, debts, and expenses.

This includes, but isn't limited to, things like:

Joint or separate bank accounts
Investment accounts
Retirement funds
Insurance policies
Mortgages or loans
Credit card debt
Other financial assets like savings bonds or Bitcoin
And any other financial obligation like student loan debt

Financial awareness goes beyond specific accounts and balances. It also means having knowledge of your income and expenses on a monthly basis, as well as your short-term and long-term financial needs. Is your trusty car on its last legs or could your house need a new boiler? Have you recently adjusted your financial strategies to deal with tax obligations? What financial goals have you set for yourself?

All this information comes together to create a holistic picture of financial awareness that can support you through the divorce process and give your legal team a solid body of information to work from.

And even better—financial awareness is a cornerstone of planning for your future.

How Financial Awareness Can Help During Divorce

Money and divorce are two incredibly nuanced topics. Your divorce attorney can guide you through the legal aspects of equitable distribution, alimony, child support, and more, but remember—they aren't financial professionals!

Individuals getting ready to start a divorce may do well to work in tandem with a trusted financial advisor (which can include financial planners and tax advisors) so they can get the advice they need to achieve their goals.

With that in mind, here are some of the specific benefits that come with strong financial awareness.

1. Allows You to Better Advocate for a Fair Division of Assets and Liabilities

A clear understanding of your financial situation is crucial in ensuring a fair and equitable division of assets and liabilities during a divorce. While your attorney will help identify assets (and liabilities!), coming into your divorce with the greatest financial awareness possible can help simplify the process.

Moreover, being financially aware can help you better protect yourself. Along with working with an experienced divorce attorney, this helps you decrease the likelihood that you might unknowingly sign away your rights to certain assets or shoulder debts that are not rightfully yours.

2. Supports Smoother Child Support and Alimony Negotiations

Calculating child support and alimony is a highly fact-sensitive process. While guidelines and statutes provide guardrails, each divorce must weigh specific considerations for each family.

Financial awareness can contribute to a smoother negotiation process, as having a clear picture makes it easier to get on the same page.

What's more, it can also help you better advocate for your needs and those of your family. For example, if your child is passionate about ice hockey and is part of a travel team, you may want to negotiate extra expenses related to this activity (such as hockey camp or related travel costs).

3. Helps Plan for a Post-Divorce Financial Future

Being financially aware empowers you to make sound decisions about your assets, investments, and day-to-day expenses. It can also help you prepare for unexpected costs or changes in circumstances post-divorce. This might include (but certainly isn’t limited to):

Moving and housing expenses
Changes in health insurance or massive cost changes
New (and potentially increased) lifestyle costs
Changes in tax obligations

Additionally, it allows you to set realistic goals and create a budget that aligns with your financial capabilities. This is especially important if you are receiving spousal support or have dependents.

Key Steps to Preparing for a Divorce Financially

In addition to working with trusted legal counsel and financial professionals to understand your marital assets, there are steps you can take to further establish your finances, protect assets, and build financial awareness. By staying informed and taking these proactive steps, you can confidently navigate the complexities of divorce and safeguard your economic interests.

1. Gather Proof of Assets and Liabilities

Put together the fullest possible documentation of your financial life. Document all assets and liabilities you’re aware of, then create a timeline based on the documentation.

This information helps your attorney establish what assets are individual or marital. They can then better advocate for you during equitable distribution negotiations; for example, if you can document that you purchased a property five years before meeting your spouse, you may be better positioned to establish it as individual property.

(But keep in mind, there is always nuance. If a property increases or decreases in value, the increase could be subject to equitable distribution, and the decrease might be shared between the parties)

What Kind of Documents Do You Need?

You might feel like you’re swimming in documents during divorce, but having a list can help. Financial documents you may need as proof could include:

Employment records, including pay stubs and benefits
Tax returns from the last five years
Six months of statements for all accounts (bank, credit union, investments, mortgage, credit cards, auto loans, etc.)
Brokerage statements
Retirement accounts (pensions, 401Ks, IRA, Roth IRA, military, etc.)
Wills and trusts
Life insurance policies
General insurance policies
Business documents (partnership agreements, tax returns, buy-sell agreements, etc.)
Real estate deeds, purchase agreements, mortgages, rental/lease agreements, appraisals, etc.
Financing documents and titles for any vehicles
Personal property documents (invoices, contracts, insurance, appraisals, etc.)
Proof of all outstanding debt (mortgages, personal loans, credit cards, student loans, tax debt, promissory notes, etc.)

2. Assess Property Value

Instead of taking your former spouse’s word for it or trusting their provided appraisal of any assets, it can be beneficial to work with a third-party forensic accountant or valuation expert to obtain an accurate appraisal for your marital assets.

This is especially important for significant assets such as real estate (whether your home or investment properties), businesses (see more below), and collections (think coins, artwork, and other collectibles). Even sports memorabilia should be assessed, as it often has variable appraisals.

Note that vehicles, unless they are collectibles, don’t need a forensic or valuation expert; Kelly Blue Book, Edmunds, or other platforms can provide reliable values.

3. Consider Business Assets

If you or your spouse started a business during your marriage, it could be considered a marital asset, even if the other spouse was never involved in the business.

If business assets are part of your financial landscape, working with financial professionals is key to determining what steps you should take.

A forensic accountant can help value the business, including liabilities, so you can determine its value and/or your share of its value.
A financial advisor can help you come up with a plan to safeguard your company finances, shore up your documentation, and more.
A tax advisor can work with you to minimize tax liabilities, plan for property transfers, plan for future tax implications, and avoid adverse tax consequences.

4. Collect Any Evidence of Misuse of Marital Funds

While the cause of divorce doesn’t typically impact the division of marital property, there are some exceptions.

For example, if you can demonstrate that your spouse’s actions led to the dissipation of marital assets because of their misuse of funds or property, you may receive a larger share of marital assets. Some examples of this include spending shared funds to engage in extramarital affairs or losing excessive amounts of shared funds from gambling.

To prove claims of misuse of marital funds, your attorney will look for evidence of when misuse occurred and to what extent.

They will also look at the source of monies used and what the monies were used for, if known. They may review the financial documentation you provided, such as bank records or credit card statements, to trace withdrawals or expenditures.

They may also look at patterns of transfers between accounts.

The Decisions You Make Today Can Prepare You for the Future

In the divorce process, information is key to making the right choices for your future, and that includes information regarding your individual and marital finances. Build your financial awareness today to protect your future.

When in doubt, contact a divorce attorney to help you navigate the process.

Sarah J. Jacobs is an experienced divorce attorney and co-founder of Jacobs Berger, LLC. With years of experience and expertise, Sarah has devoted her legal career to assisting individuals in navigating complex family legal matters. With a focus on divorce, child custody, alimony, and domestic violence cases, Sarah is known for her compassionate approach and strategic thinking.

Related articles:

Important Financial Documents for Divorce

Dealing with Finances During Divorce

What’s Worth Fighting for in Divorce

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