In addition to the emotional strain of a divorce, the process can put a person through considerable financial trouble as well. However, preparation for a financial separation from your spouse can make dealing with the mass of paperwork involved easier, as well as reduce your financial burden from legal bills and educate both you and your spouse about the financial situation. There are five steps that you can take to ease the stress from a divorce.
The first step is an evaluation of assets. The biggest financial asset of a couple is frequently their home, however, there are other assets owned by a couple that aren’t immediately obvious, such as retirement options, pensions from previous jobs, stock options, deferred compensation, and implied benefits. When valuing assets, one should also consider tax implications, as assets may sometimes carry tax responsibilities in the future.
Next, weigh overall outstanding debt. A 12-month history of all credit card and utility bills, as well as jointly held and personal loans will help parties decide who will take on what debt. It is advisable that couples pay off as much debt as possible before separating, and that each spouse should be responsible for something that they have property for.
Next, it is highly suggested that everyone run annual credit checks through all three agencies, as knowing where your credit stands before a divorce can prevent problems in the future. Doing so can remedy any inaccuracies found and put one in a stronger financial position. Honestly assessing one’s spending habits can help one adjust for life after the divorce. People often underestimate how much they spend, so an honest accounting of actual needs can help give them a clearer picture of their spending habits.
Finally, knowledge of how much money is coming in and from where can help clarify how much alimony or child support will need to be paid. Sources of income to be considered include not only income from one’s employer, but also income from business ownership and from investments.
Parties considering a divorce should obtain copies of tax returns, which include this information. This is especially important when one spouse is self-employed, as services can be paid for in several ways, and there may be hidden sources of income that may need to be detected by a forensic accountant, because the divorce settlement may be impacted by the value of a future license or of the assets of the business.