Do you know your credit score or the details of your Social Security report? Can you find your home deed, mortgage, life insurance policies, car title, car insurance policies, tax returns for the last 5 years, brokerage, and bank statements from last year? Do you know what your spouse earns or how much goes into a 401k plan annually?
Getting divorced is often a wake-up call when it comes to figuring out what you do and don’t know about family finances.
Managing your finances is not about knowing which stocks, bonds, or mutual funds to buy. It’s about knowing what you own (assets); what you owe (liabilities); what comes in (income) and what goes out (expenses). It’s about paying attention to the destination and organization of your money.
You will be required to submit a large amount of paperwork and financial documentation for the court, your attorney or mediator, and for your future ex-spouse. Then let’s get started:
Clean up a workspace and collect all your statements: bank, brokerage, credit cards, etc. Other supplies to gather: paper, pen or pencil, 3-ring binder, hole punch, index dividers, highlighter, and a sense of humor.
First, we are going to tabulate your net worth (difference between what you own and what you owe): make a list of everything you own: house, car, brokerage accounts, life insurance, retirement accounts and their value (Internet can help – try KBB.com and zillo.com). Then list everything you owe: mortgage, car loan, credit card debt, school loans, and your outstanding balance. Keep this information stored in the first section of your 3-ring binder.
Next, find out where your money is going (cash flow) or the reality of having no idea where you spent all that money. The easiest way to determine your cash flow is a computer program like Quicken or QuickBooks. A useful website is mint.com. If you prefer not to use the computer, you can do it with Excel, columns on lined paper or on graph paper.
To budget, gather your check stubs, check stubs, and credit card statements. Assign each expense a category and a subcategory. Example: Utilities – Telephone, Utilities – Cell Phone, Utilities – Cable and enter your expenses for each month. You’ll get a total for each sub-category, as well as a total for the entire Utilities category. Be sure to enter your income, including income from child support and alimony. Print a report every month and a quarterly report every 3 months. Place them in a Cash Flow or Budget section of your folder.
It may take you several months to get a picture of your income and expenses, but it will become the basis for managing your finances, as well as negotiating child support and alimony.
With a check on your cash flow, you can find places where you can reduce or control expenses. Try taking a 10% discount on your income cap as savings. Then rework your expenses to see if you can still manage them. Use the amount of money you can save to:
• Get out of debt: pay off credit cards and loans
• Have an emergency fund not invested in the stock market. Try to save a minimum of 3 months of household expenses. If possible, have an additional 3 months in a short-term certificate of deposit or money market account.
• Take advantage of retirement plans
Place this information in your savings goal section of the folder.
With this information, a consultation 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 be the case.