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, auto insurance policies, last 5 years tax returns, brokerage and statements bank accounts 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 isn’t about knowing which stocks, bonds or mutual funds to buy. It’s about knowing what you own (assets); what you owe (liabilities); what goes in (income) and what goes out (expenses). It’s about paying attention to where your money is going and being organized.
You will be asked to produce a lot of financial documents and documentation for the court, your lawyer or your mediator and for your future ex-spouse. So, let’s start:
Clear a workspace and gather all your statements: bank, brokerage, credit cards, etc. Other supplies to gather: paper, pen or pencil, 3-ring binder, hole punch, dividers, highlighter, and a sense of humor.
First, let’s draw up a chart of 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 (the Internet can help; try KBB.com and zillo.com). Next, list everything you owe: mortgage, car loan, credit card debt, school loan and their outstanding balance. Keep this information stored in the first section of your 3-ring binder.
Then find 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 grid paper.
To make a budget, gather your checkbooks, 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 sub-category as well as a total for the entire Utilities category. Don’t forget to list your income, including alimony 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 alimony and alimony.
With control over your cash flow, you can look for places where you can cut expenses or control expenses. Try to take 10% off the top of your income as savings. Then, rework your expenses to see if you can still manage. Use the amount of money you can save to:
• Pay off your debts: pay off your credit cards and loans
• Have an emergency fund not invested in the stock market. Aim for a minimum of 3 months of household spending in savings. If possible, have an additional 3 months in a short-term CD or money market account
• Take advantage of pension plans
Put this information in the Savings Goal section of the workbook.
Armed with this information, a consultation with a Certified Divorce Financial Analyst early in the process can help you navigate the challenges of divorce with more confidence and dignity than you would otherwise.