It’s not surprising news that money is a big source of stress for people. According to the CNBC Your Money Survey, 74% of working Americans say they’re stressed about their personal finances. A 2023 Bankrate report found that 52% of adults felt money had a negative impact on their overall mental health.
Add in balancing divorce along with balancing your budget, and you may feel like the picture is bleak. It’s true that divorce can decrease household income, affect credit scores, and disrupt long-term financial plans and overall financial security.
But, there is a silver lining in what might seem like a black cloud. While many people often focus on the finances surrounding a divorce—attorney fees, filing costs, alimony or child support, etc.—without thinking about their overall financial picture, if you’re savvy about the way you view long-term planning, you can be better prepared.
Thinking about what’s ahead, and what matters to you can put you in a problem-solving mindset and help you avoid some of the financial stresses during the divorce process. Asking these five financial questions can jumpstart the process.
1. Do I understand my marital finances?
When you’re preparing for (or going through) a divorce, it’s essential to know as much about your finances as possible. This means gathering a wide range of information, including (but not limited to):
- Household budget
- Spending habits
- Assets and liabilities which can include:
- Stocks and bonds
- Retirement savings
- Property or real estate
- Furniture
- Family-owned or private businesses
- Debt (mortgage, credit card debit, student loans, etc.)
Having a handle on this information helps you in two important ways. First, it helps you get organized. Don’t underestimate this as a real savings; divorce involves lots of paperwork and documentation, and when you have it easily accessible, it helps you meet deadlines, avoid delays, and generally feel prepared.
In a broader sense, though, understanding your marital finances allows you and your divorce attorney to build the right legal strategy for you.
You can make more informed decisions on everything from divorce procedures to setting realistic goals for your life post-divorce. This can also help decrease attorneys fees if you can give your lawyer files which can help them assess the situation from the outset, rather than simply spending time gathering information before they can analyze it.
2. What’s the value of my property?
Think your property value only pertains to real estate? Think again! Property valuations are helpful for understanding your assets, whether they are your new-to-you SUV or the antique china inherited from your great-aunt Susan.
If you have any of the assets below, it might make sense to seek a professional valuation to help you understand their worth and how they might inform your divorce strategy:
- Art collections
- Sports memorabilia
- Real estate
- Business interests
- Retirement accounts and pensions
- Investment portfolios
- Vehicles
- Household items
- Digital assets
- Intellectual property and royalties
- Annuities and life insurance
Consider, for example, if your spouse has a large sports memorabilia collection. If they bought some of the collection using a joint bank account, this might fall under marital assets. If your spouse is very attached to that collection, it could also be a strategy in the negotiating process to let that collection go to pursue a marital asset that you are more committed to keeping post-divorce.
But don’t just take off finding appraisers for every asset in your portfolio.
That same sports memorabilia collection? It might not be worth the cost of valuation depending on what the memorabilia actually is. Make sure to discuss with your divorce attorney whether valuation is helpful, or wasteful, and when to hire experts versus when not to.
Pursuing a professional valuation from a qualified appraiser could also identify any discrepancies in the discovery phase. (Which leads us to our next question to ask!)
3. Are there any assets that haven’t been disclosed?
Divorce involves a lot of information-gathering—in fact, that’s the whole point of the discovery process. During discovery, both spouses have to disclose relevant financial information, which establishes a comprehensive picture of their joint and individual finances.
Relevant financial disclosures can include:
- Income information (wages, salaries, bonuses, etc.)
- Asset information (bank accounts, retirement accounts, real estate properties, business interests, valuable personal property, etc.)
- Debt and liabilities (mortgages, car loans, student loans, credit card debt, etc.)
- Tax returns
- Expenses (housing costs, utility bills, food, transportation, etc.)
- Child-related expenses
The goal here is for both parties to be financially forthcoming and provide any documents requested. However, it’s possible that a party could fail to disclose certain financial information.
For example, let’s say your ex received a substantial tax refund after you decided to divorce and didn’t disclose it. This could paint an inaccurate picture of their net salary. In turn, an inaccurate picture of their salary could affect alimony, child support, and other financial aspects of the settlement. In certain cases, that same tax refund might also be marital in nature, and could be treated as an asset to divide.
Without information, it is hard to assess the true financial picture.
If you think your ex-partner is failing to disclose financial information, discuss this with your divorce attorney. Depending on the circumstances, they may file subpoenas, request a court order, or recommend hiring a forensic accountant to help uncover relevant data.
4. What are the tax implications of divorce?
Taxes and divorce can get complicated for several reasons. Working with a tax professional can greatly reduce the stress of figuring out how taxes interplay with your divorce, but there are many important questions to keep in mind. Some of them include:
- What was your marital status on the last day of the tax year?
- What child related tax credits are available and how will they be allocated?
- Who can claim Head of Household for any one child?
- Will your child’s age impact tax credits?
- Will you be paying or receiving alimony?
- If you’re selling any assets, will they be subject to capital gains tax?
- If you’re withdrawing any funds from retirement accounts, how will distributions and penalties be distributed?
Asking these questions can help you:
- Make decisions on how you would like to divide assets (and potentially, liabilities)
- Plan for taxes (e.g., will you file as single or head of household? Will you adjust your withholding allowance?)
- Strategically negotiate your divorce settlement
- Create a clearer plan for post-divorce finances
For example, say you and your ex split parenting time unevenly, but your two children still stay with you every weekend. It may be worth discussing whether your ex claims both children as their dependents for a tax deduction or if you split the dependent status between you two so you both receive a tax deduction.
Income levels and other factors can also affect these negotiations, so involving financial professionals even early in the process can be helpful.
5. What’s my plan for current and future expenses?
While many financial decisions in a divorce rely on historical data, it’s important to make a plan for current and future expenses as well, not just taxes.
When exes divide a joint income household, it can be more difficult to maintain the same standard of living proportionate to your income. Many things are often more affordable in a joint-income household.
For example, if you and your ex were paying $2,000 in rent for a two-bedroom townhouse and splitting the rent evenly, it would cost you twice as much to stay in that townhouse or a similar one in the area by yourself.
Other expenses that might become more expensive proportionately as a single-income household include:
- Utilities
- Groceries
- Travel
- Health insurance
- Car insurance
Keep in mind that some costs might not be immediately obvious. Tax implications, as mentioned above, can sneak up on people, as can moving expenses. But even “small” hidden costs can add up quickly—expenses like subscription services, individual gym memberships, or the loss of family discounts on things like cell phone plans can inch your budget upward.
The solution to managing these costs is two-fold: start by establishing clear financial goals for your post-divorce life and then aligning your budget to help you meet them as best as possible. If you’re feeling overwhelmed by all these questions, this is where the right divorce attorney comes in; they can help you set realistic expectations so the process feels manageable and achievable.
You don’t have to figure this out on your own
At Jacobs Berger, our divorce attorneys have decades of combined experience helping people prepare for their future. From navigating the marital finance division to predicting tax implications, we work closely with clients to ensure they are informed and confident in their financial decisions.
If you need help navigating financial decisions during the separation process, contact our team to schedule a strategic planning session.
