If you are contemplating asking your spouse for a divorce, or are already in the beginning stages of the process, it is very important that you prepare for what lies ahead. Divorce is paperwork intensive, and the one thing that drives up the cost of a divorce is the process of gathering all the necessary financial documents during the discovery period.
Having all this information gathered at the beginning—and ready to go when your divorce professional asks for them—will help identify any potential issues and bring clarity early on. This, in turn, will make you feel more in control and less stressed out about your financial future.
Knowledge is Power
Knowledge is power, and never is this more important than in divorce. I'm not talking about the type of power you hold over your spouse to control him or her; I’m talking about the type that empowers you with the confidence to make the right financial decisions—leading with facts, not emotions.
Having the knowledge about all your assets, liabilities, your living expenses and the income available to cover those expenses, will put you in a much better position to negotiate for a settlement that works best for you and your family. When the financial information is gathered and analyzed at the beginning of the process, it can be used as a shared tool and resource to develop mutually advantageous settlement scenarios.
This is in contrast to information being used as a weapon, as it often is in litigation.
Initial Documents Needed
When I meet with my clients for an initial consultation, I typically ask them to bring a few important key documents to help me see what their overall financial picture looks like. This makes our initial meeting more productive and allows me to quickly see what issues lie ahead, and what further documentation I will need to request.
A few of the items I typically ask my clients to bring to our initial meeting:
- 2-3 most recent pay stubs for both spouses;
- 3 years of federal tax returns (1040), including W2, 1099 and K-1;
- 3 years of 1120S or 1065 returns for self-employed, or small business owners;
- Most recent mortgage statement for marital home and any other properties;
- Most recent checking/savings, investment and brokerage account statements, including employer stock plans;
- Most recent monthly or quarterly retirement account statements (IRAs, 401(k), 403(b), etc.;
- Any other documents the client deems appropriate.
One thing to note is that I initially only request statements for the most recent month because, at this point, I have not been hired; it’s just an initial consultation. Your attorney will most likely request anywhere from three months to three years of statements, depending on the divorce process (mediation, collaborative, litigation) you are involved in.
If there is a concern of marital dissipation of assets, then I will also request three years of statements so I can do an in-depth review, looking for dramatic increases or decreases in the accounts. We can then work together to account for the differences.
The above list is just the tip of the iceberg. Depending on the complexity of your financial situation, you may be asked to gather box loads of paperwork. However, the more you can do upfront—knowing you are going to have to provide this information—will help streamline the work your attorney has to do, which means less hours spent tracking down the required documentation.
Working with a CDFA® from the beginning is extremely beneficial to both the clients and the attorneys, as it allows the financial expert to be the organizing source of all the information, vetting it for reliability and requesting any missing documentation early on.
Know What It Takes to Run Your Household
After gathering all the necessary financial documentation, preparing a Living Expense Worksheet is the next most important thing you need to do to prepare for your divorce. Understanding what it costs for you and your family to live on a monthly basis is paramount to knowing if you are going to be okay or not, once you are divorced.
Many of my female clients want to stay in the marital home with the children, but they have no idea what it costs to do so. Taking the time to figure out how much you spend on food, electricity, gas for the car, clothing, kids' activities, and a multitude of other expenses will go a long way in knowing if you can even afford to stay in the home. You do not want to be having difficulty paying bills after divorce, as your stress and anxiety will filter down to the kids, making a bad situation even worse.
When I went through my own divorce, I needed to know if I would be able to stay in the marital home for a few years, until my youngest graduated from high school. I went though 12 months of bank statements and credit card statements and categorized everything I spent. I had pages and pages from yellow legal pads strewn about the kitchen table, until I came up with my cash flow. Even though it was a tedious and time-consuming task, I found it to be incredibly empowering, because I could see where my money was going—and I found places where I could cut back and even eliminate some expenses. That was over 13 years ago, but because I did that exercise, I am still in control of my money, rather than my money being in control of me.
Be Informed. Be Empowered. Take Back Control.
Divorce is a very stressful, overwhelming life event. The best thing you can do is to make sure you know what the "marital estate" consists of. You cannot negotiate, or have conversations about, settlements with your attorney if you do not know what you are negotiating for. Your attorney is your legal expert, so if you want to have peace of mind about the financial decisions you are making, educate yourself; or consider working with a financial expert to help you from beginning to end.