Do you know your credit score or the details of your Social Security report? Can you find the deed of ownership of your home, mortgage, life insurance policies, title deed, auto insurance policies, income tax returns for the past 5 years, brokerage statements and banks of the past year? Do you know what your spouse earns or how much goes into a 401k plan each year?
Divorce is often a red flag when it comes to finding out what you know and don’t know about your family’s 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 (passive); what goes in (income) and what goes out (expenses). It’s about being careful where your money is going and being organized.
You will be asked to produce numerous documents and financial documents for the court, your lawyer or mediator and for your future ex-spouse. So, let’s get started:
Clear a workspace and collect all your statements: bank, brokerage, credit cards, etc. Other supplies to collect: paper, pen or pencil, 3-ring binder, hole punch, dividers, highlighter, and a sense of humor.
First, let’s total your net worth (the 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 (the internet can help – try KBB.com and zillo.com). Next, make a list of everything you owe: mortgage, car loan, credit card debt, school loans, and their outstanding balances. Keep this information in the first section of your 3-ring binder.
Then find out where your money is going (the cash flow), or the reality of not having a clue where you spent all that money. The easiest way to determine your cash flow is with a computer program like Quicken or QuickBooks. A useful website is mint.com. If you prefer not to use the computer, this can be done with Excel, columns on lined paper or on graph paper.
To budget, gather your check books, check stubs, and credit card statements. Give each expense a category and a subcategory. Example: Utilities: phone, Utilities: cell phone, Utilities: cable and enter your expenses for each month. You will get a total for each subcategory as well as a total for the entire Utilities category. Remember to enter your income, including child support and alimony income. Print a report every month and a quarterly report every 3 months. Put them in a Cash Flow or Budget section of your binder.
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 control over your cash flow, you can look for places where you can cut spending or control spending. Try to save 10% on top of your income. Then rework your spending to see if you can still manage. Use the amount of money you can save for:
• Get out of debt – pay off credit cards and loans
• Have an emergency fund not invested in the stock market. Aim for a minimum of 3 months of household spending on savings. If possible, have an additional 3 months on a CD or short-term money market account
• Take advantage of pension plans
Put this information in your Savings Goal section of the workbook.
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 you might otherwise.