Do you know your credit score or the details of your Social Security report? Can you find your deed to your house, mortgage, life insurance policy, car title, auto insurance policy, tax returns for the last 5 years, brokerage and bank statements for the past year? Do you know what your partner makes or how much goes into your 401k plan each year?
Divorce is often a wake-up call for what you know and don’t know about your family’s finances.
Managing your finances isn’t about knowing which stocks, bonds, or mutual funds to buy. It’s about knowing what you own (assets); what you owe (liabilities); what goes in (income) and what goes out (expenses). It’s about paying attention to where your money is going and being managed.
You will be required to produce many financial documents and documentation for the court, your attorney or mediator and for your potential ex-spouse. So, let’s get started:
Free up workspace and collect all your reports: bank, broker, credit card, etc. Other supplies to collect: paper, pen or pencil, 3-ring binder, hole punch, index divider, highlighter, and a sense of humor.
First, we’ll tabulate your net worth (the difference between what you own versus what you owe): list everything you own: house, car, brokerage accounts, life insurance, retirement accounts and their value (the internet can help – try KBB .com and zillo.com). Then, make a list of all your debts: mortgages, car loans, credit card debt, school loans, and their outstanding balances. Save this information in the first of your 3 ring binders.
Next, find out where your money is going (cash flow), or the fact that you don’t know where you’re spending all that money. The easiest way to determine your cash flow is a computer program such as Quicken or QuickBooks. A useful website is mint.com. If you prefer not to use a computer, this can be done with Excel, columns on lined paper or on graph paper.
To create a budget, collect your checkbooks, check stubs and card billing statements. Give each expense category and subcategory. Example: Utilities: phone, Utilities: cellphone, Utilities: cable and enter your expenses for each month. You will get totals for each subcategory as well as totals for the entire Utilities category. Don’t forget to include your income, including income from child support and alimony. Print reports every month, and quarterly reports every 3 months. Put this in the Cash Flow or Budget section of your binder.
It may take you a few months to get an idea of your income and expenses, but it will form the basis for managing your finances and negotiating child support and benefits.
With a handle on your cash flow, you can find places where you can reduce expenses or control expenses. Try taking 10% of your income as savings. Then, repeat your spending to see if you can still manage it. Use whatever amount of money you can save on:
• Get out of debt – pay off credit cards and loans
• Have an emergency fund that is not invested in the stock market. Aim for a minimum of 3 months of household expenses in savings. If possible, get an additional 3 months in a short term CD or money market account
• Take advantage of retirement plans
Place this information in the Your Savings Destinations section of the folder.
Armed with this information, consulting with a Certified Divorce Financial Analyst, early in the process, can help you face the challenges of divorce with more confidence and dignity than might otherwise be the case.