Chris Chen CFP
Steps to a Divorce Diagnostic
People who are contemplating divorce are often overwhelmed with the process. That’s completely normal. After all divorce is not something that you do every day.
As a Divorce Financial Planner and Wealth Strategist, I work with women and men who are contemplating divorce, going through divorce or recovering from divorce. Every one of these men and women are going through significant upheaval in their lives. They all need a Divorce Diagnostic ™.
So, where should you begin?
As a Divorce Financial Planner, it should come as no surprise that I would advise you to deal with your finances first and get a Divorce Diagnostic ™. There is an old saying that marriage is about love, and divorce is about money. This is not entirely true. Divorce is an emotionally draining process that is about a lot more than money. Yet in the end, whether it is the amount of assets you will get, the child support you will pay or the legal retainer you will pay, it often comes down to the money.
You will have to consider the tax and cash flow consequences of keeping or selling the marital home. You may need to reconsider your retirement planning. The list is long.
However, there are seven steps that you can take before you start your divorce process leading to a Divorce Diagnostic ™ that may make the process less painful.
1. Take an inventory of all your financial records.
As a first order of business, you need to gather all financial records of both you and your spouse, including bank account information, tax returns, mortgage statements, credit card bills, wills, trusts, life insurance policies and retirement accounts, to name a few. Be especially mindful of assets either of you believes have no value or indeterminate value, such as employee stock options, unqualified executive compensation plans and defined benefit pensions. Disputes often center around specific assets. It is important to know what they are and where they are.
2. Open new bank and credit accounts in your own name.
You should have your own source of funds. Open a checking account in your own name, preferably at a different bank from where you hold your joint account. If you do not have a credit card in your own name (not a joint credit card), get one. If you have no income of your own that may be difficult. Before you open your checking account, you may want to verify that the bank will give you a credit card also.
3. Monitor your credit report.
This is a good way to keep a pulse on how your financial situation will be evolving until you divorce. The credit reporting companies allow you a free copy every year. You should take advantage of this offer.
4. Start budgeting for legal and professional fees.
Divorce is expensive. You will likely require the help of professionals including lawyers, mediators, divorce financial planners and mental health professionals. Make sure that you have funds available for these expenses.
5. Consider alternatives to litigation.
Explore options such as mediation or a collaborative divorce. If you have reasonably good communication with your spouse, these alternatives may be quite a bit less expensive than the traditional litigation model. The goal is to get through divorce intact, not to spend all your assets on legal fees.
6. Assemble a team.
Not unlike a sports team, each player has a role. You will need a family lawyer to review the legal aspects of your divorce. You may need a therapist to help you deal with the emotional rollercoaster. You and your spouse may decide to use a mediator. And you will need a Divorce Financial Planner to help you with the financial aspects of divorce.
7. Conduct a Divorce Diagnostic ™.
A Divorce Diagnostic ™ will allow you to get a good grasp of your financial situation, and likely outcomes, right at the beginning of the process. You will then be able to plan accordingly and make sound decisions on how to move forward. Gaining control of the process before it gets control of you will allow you to best achieve a favorable outcome.
Divorce is a lot of work that can seem daunting. Completing these seven steps will help you feel more in control and better equipped to make thoughtful, reasoned decisions.
You want to come out of divorce in the best financial and emotional shape possible, with the well-being of your children protected, your assets preserved and a sound long-term financial plan in place.
(A previous version of this post was published in the Boston Globe)