For most people, a divorce is the largest financial transaction they will ever make. So why is it that so many people navigate divorce without aligning their divorce settlement with their financial goals?
Honestly, I think it’s because this approach hasn’t been part of the traditional divorce process. The traditional process looks something like this:
Family law attorney gathers the financial information and mandatory documents
Family law attorney, or a paralegal, enters the financial information into the required court documents
Based on this snapshot of information spouses begin dividing their marital property by passing offers between their attorneys.
In this process, there’s often no holistic review of the entire financial picture and how specific financial offers impact each spouse’s short-term and long-term financial goals.
Divorce Settlement and Financial Security
Thankfully the traditional approach is changing. More and more family law attorneys are partnering with divorce financial planners to help their clients with tax planning and divorce financial planning. The financial piece of a divorce is so incredibly important. Issues regarding children aren’t always part of the divorce process, but finances are. And it’s the finances that will determine whether someone is financially secure after divorce. It’s the finances that will determine whether someone can retire, be required to work past normal retirement age or even worse - never get to retire.
Some might say that this what I’m talking about is fear-driven, but I’m here to tell you that it is not. Unfortunately, I’ve seen it firsthand and it’s sad. By the time I see it, it’s too late. In most cases, had there been proper divorce financial planning before the divorce settlement both spouses would have been financially secure. With proper planning, the adverse financial impact is often preventable.
I want to provide you with a Preparing for Divorce Financially Checklist. In this article I cover 3 Steps to Dividing Your Marital Property and Accomplishing Your Financial Goals After Divorce. I will be covering each of these steps at a deeper level in future posts. If you’d like the future articles delivered straight to your inbox, then don’t forget to subscribe to our newslettter below.
Let’s get started!
Gather all necessary information regarding your finances
Gather all relevant financial information to understand your overall finances in divorce. Be extra vigilant when gathering details. Some details would be non-essential while married yet become essential information in divorce.
As a simple example, married couples are aware of how much goes into their mortgage escrow account, but they ignore the escrow balance. When divorcing, the balance of the escrow account becomes important. You and your spouse will decide how to divide those marital funds. Knowing specific details will matter to your overall divorce settlement.
Essential documents include:
Tax returns
Your credit report
Your spouse should provide their credit report
Gather specifics about your current mortgage Know your current escrow balance
Provide details regarding pre-marital assets
Start by clicking here to download a comprehensive list - Preparing for Divorce Financially Checklist - Documents to Gather for Your Divorce in Missouri
Prioritize Your Future Goals and Understand How Dividing Your Marital Property Impacts These Goals
What are your financial goals? Some people have never taken the time, or had the luxury of time, to stop and think about their financial goals. Life is busy and most of the time we are working hard to keep up with our day-to-day responsibilities. It is important to take time and identify your goals during a divorce. Otherwise, you won’t know how your final financial settlement impacts your financial future. Instead, you will be stuck with the assets and debts you agree to in the divorce and there’s rarely an opportunity to revisit them after divorce.
I know it can be hard to think about the long-term when going through a divorce, but please try to. Your future self with thank you for it. Buy a notebook and begin writing down your priorities. Start identifying your short-term and long-term financial priorities. It doesn’t matter where you start – just start.
Here’s a quick list to get started and if you would like a longer list, then click on the link below to access a more comprehensive list.
Ideas for Financial Priorities:
Residence
Advancing your earning potential
Emergency fund
A specific amount of money left over at the end of each month
Age at which to retire
Ability to save for retirement
Providing for your children’s or grandchildren’s college
Once you’ve gathered your financial documents and identified your financial goals you should assemble your finances in a format that provides a holistic view of your marital property.
Gain A Full View of Your Entire Financial Picture
Once you’ve gathered all of the financial information you will want to put it together in a meaningful way. If you divorce in Missouri, then you will use this information to assemble:
Income and Expenses Statement
Statement of Property
Your Statement of Property includes a listing of your marital and non-marital assets and debts. Regardless of the divorce process, you will be required to provide these (2) financial statements when you divorce in Missouri.
Group like-kind assets together. For example, you will group all real estate together and their associated debt. You will group all retirement accounts together and any associated loans. Group all liquid accounts such as bank or money market accounts. You will do this grouping for each type of asset.
Once you pull all of this information together you will want to run 2-3 financial scenarios for dividing your marital assets and debts. Be sure to layer in any non-marital assets. Non-marital assets can have an impact on your future finances it just depends on the kind of non-marital assets you have. Keep in mind how each scenario aligns with:
Fair and equitable division
Accomplishing your short-term and long-term financial goals
Not all assets are equal. Some are tax-free while others are not. Some cost money to maintain while others do not. Some are available immediately while others are not. For each settlement scenario understand how the division of assets impact your future taxes and financial goals. To align potential settlement offers that support your future goals you will need to be very clear about your goals.
Contact An Experienced St. Louis Divorce Financial Planner For More Information
Nicole Davis is an experienced St. Louis certified divorce financial analyst (CDFA), divorce financial planner, and divorce mediator. She works with clients directly or in conjunction with their family law attorney or mediator. She helps her clients craft fair and equitable divorce financial settlements - allowing them to accomplish their short-term and long-term financial goals. If you would like to learn more about our divorce financial planning process and how we can assist you in making important financial decisions during divorce, then call us at 314-272-0727 or schedule a 30-minute consultation online today.