Ten Financial Tips for Women Seriously Considering Divorce
By Hollis Colquhoun
1. Get informed. In order to have an idea of where you stand financially after divorce you need to figure out your financial status as a married couple. Gather all of the documents pertaining to your assets and liabilities. Each current account statement, whether it's reporting the mortgage balance, credit card balance, Individual Retirement Account value, student loan, etc. will give you a piece of the puzzle of your marital worth, the assets and liabilities you and your husband share, what you each have individually and what the balances are.
2. Create a balance sheet. This gives a snapshot in time of what you own and owe-your asset and liability values. On the left-hand side of the page list your assets, generally starting with the highest priority ones, like your home and cars. A column on the right side will list your liabilities or debts. If some are directly attached to an asset (secured) like a car loan is attached to the car, put those loans across from the assets they're related to. Unsecured debts such as credit cards aren't attached to any particular property but you still have a general obligation to pay them. Label each asset and liability as being either joint or individual. Be sure to include retirement accounts and check for any loans taken out against them. Also, don't forget to list valuables under assets, such as antiques and jewelry.
3. Look at your joint IRS tax returns for the past 3 years. These returns will report your annual marital income, whether it came from a salary, bonuses, bond interest or stock dividends, and property or partnership income. The reports will also give a clearer picture of tax-deferred accounts such as a 401k or pension retirement account, by showing the income deduction taken for retirement contributions. If you use an accountant to prepare your returns, make an appointment to review your latest returns. Sometimes they can be hard to decipher.
4. Understand the household income. What was your annual joint income for the past three years and what did you earn? Was the income steady, on a monthly basis or quarterly, or did it come in one chunk at the end the year? Once you have a clearer picture of the household's income flow it will be easier to understand and split.
5. Calculate your worth as a stay-at-home mom. Just because you don't earn outside income, doesn't mean you don't bring added value to the household budget. List of every activity you do that saves the household money, e.g. grocery shop, cook, transport children, do laundry, clean the house, care for an elderly parent. On a column alongside these activities, calculate what it would cost to hire someone outside of the family to do each task, then add up the dollar total. Since this would be an after-tax number, figure out what that would equate to in annual pre-tax income. Are your savings efforts worth the equivalent of a $30,000 or $40,000 income contribution?
6. Make a list of your family’s current monthly household expenses. Construct a monthly budget and don’t forget to pro-rate monthly the expenses that might only come every 6 months or year, like insurance. If something happens to your marriage, chances are you’ll be the caregiver for the children so it’s very important to have a realistic idea of what the basic household expenses have been and might be monthly and yearly.
7. Hire good professionals. Regardless of your financial situation you should speak to several legal and financial professionals to get the best guidance through the divorce process. Pick the lawyer who will act as your advocate and a financial adviser who will focus on your financial needs and goals. Don’t use the same financial professional that your husband uses for the sake of convenience! There are free resources for help at LawHelp.org and Nolo.com. (Note, during the interview process, if you speak to a lawyer about your situation, that lawyer is precluded from representing your spouse.)
8. Split assets and liabilities by amount and type. In many cases women try to keep the marital house for the sake of the children, but that might not be the best solution for their financial stability. Often the house is the biggest marital asset but it doesn’t produce any income and doesn’t necessarily add to your financial nest egg. If the divorce agreement has the house and mortgage going to the you and the other assets and liabilities like the credit card debt, IRA and securities account going to your husband, then the only income you will have is alimony and child support. In some cases it’s better to sell the house and other jointly held property then divide the assets and debts evenly by amount and type (liquid and illiquid). Then you can rent or buy a house that you can afford and have liquid assets that can be used for income or emergency funds in case the alimony or child support payments suddenly disappear.
9. Create a mock budget. Do some homework regarding your various living options, then list anticipated monthly expenses. See how the numbers work out and what monthly alimony and child support you’ll need. If you have to go back to work to make ends meet and had a prior career or job position, ask for rehabilitative alimony where additional money is paid to you in the early part of the settlement agreement for education and retraining purposes.
10. Have the account titles changed. For those assets and debts you are going to transfer to the other person or change from joint to individual, amend the account and title before the divorce is final, that way you aren’t relying on your ex-spouse to make payments on a debt that is still classified by the creditors as joint. If he stops paying you will still be liable. Just having a settlement agreement doesn’t mean the creditors will automatically shift the liability. For them it’s better to have two people on the hook for the debt payments.
This list seems like a lot to handle, but it’s not if you take one step at a time. Your financial health is directly tied to your mental and physical health, and is just as important. Realize you’re worth it and that your financial future is at stake.
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Author and financial self-defense expert Hollis Colquhoun knows firsthand the struggles women go through in divorce. An Accredited Financial Counselor who worked 20 years on Wall Street, she persevered through a difficult divorce and major surgeries to raise a family and achieve financial independence. Hollis counsels women from the difficult early stages of divorce, when they need sound financial advice to navigate feelings of anger, loss and betrayal and build a new future. Her book, Women Empowering Themselves: A Financial Survival Guide, is a concise, pocket-book manual to help women take charge of their finances. Hollis, who holds black belts in Karate and Taekwondo, uses martial arts principles to teach women to protect themselves financially.
