AVOID FINANCIAL RUIN FOR LIFE
Overview
In this episode, Marcy discusses the top few things you should be thinking about from a financial perspective as you begin your divorce planning process. Marcy touches on topics such as your credit report, the importance of your own checking and savings accounts, as well as assets, liabilities and navigating funds you may have received as inheritance.
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7 key findings – the steps I advise that you should be taking as you’re preparing to go through the divorce process.
FIRST: obtain a current copy of your credit report.
In today’s episode, we’re going to focus on the top few things that you should be thinking about from a financial perspective as you begin your divorce planning process. The very first thing you should do in this space is to obtain a current copy of your credit report. A lot of people don’t know what their credit report looks like…they don’t know what their score is, they don’t know what’s on there. It’s really important to get a copy. It’s something you can get for free online and go through it – it may be painful to go through it – but go through it line by line, and make sure it’s accurate. If there are charges on accounts there that you didn’t open, you can take steps to challenge them. It’s really important to get your credit report house in order at the beginning of the process. It can reveal to you things that perhaps your spouse has done to impact your credit that you didn’t know about. So it’s really important that you get a copy of your credit report and get it as cleaned up as you can.
SECOND: open a checking account and a savings account in your name
The second thing that I recommend is that you open a checking account and a savings account in your name. It’s going to be important for you to have financial independence and if you have, throughout your marriage, had joint accounts with your spouse, it’s really important that you have your own checking and savings account. Similarly, you should be applying for credit in your name. If you don’t already have credit in your name, or if you’re only an authorized user on your spouse’s cards, it’s really important to try to establish your own credit where you can.
THIRD: creating an honest and realistic budget of your marital income and your marital expenses.
Next comes the really hard part, which is creating an honest and realistic budget of your marital income and your marital expenses. This can be a big pain point because a lot of people are not honest with themselves about how much money they make and how much money they spend. It’s really important to know, as a married couple, what have you got coming in and what have you got going out.
Fourth: create an honest and realistic budget of your anticipated income and expenses post-divorce
From that, you’re going to do the next thing which can also be very difficult…and that is to create an honest and realistic budget of your anticipated income and expenses post-divorce. So you need to think about what income sources do you have? Is it a situation where you’re already working? Is it a situation where you’re going to need to go back into the world workforce? Is it a situation where you need to put some education under your belt before you’re going to be able to re-enter the workforce? Whatever it may be, you need to think about what is realistic for you in terms of anticipated income, post-divorce, as well as your expenses. How much money are you going to be spending when one household becomes two? Which we’ll cover in a future episode, alimony or spousal support, and child support may factor into that budget. But it’s important, assuming that you’re not getting any child support and assuming that you’re not getting any spousal support, to take a look at what money you’re going to have coming in, and what’s going to be going out after you get divorced.
FIFTH: make a comprehensive list of your assets and liabilities
The next step to take is to make a comprehensive list of your assets and liabilities. This should include any assets or debts that you brought to the marriage as well as any funds that you inherited, either before or during the marriage. The reason why that’s important depends on the state in which you live – and the rules do vary state by state on this. I’m a Michigan lawyer, so I know the rules in Michigan, but you’ll need to understand by talking to a professional in your state what the specific rules are that apply to your state. But as a general matter, if you brought assets or some debts into the marriage, that could be considered premarital property. For example, you may get some type of credit for that premarital property. Let’s say you brought a home to the marriage or let’s say that you put a down payment on the home several years before you were married – that may be income or an asset that you’re entitled to a larger percentage of, so it’s really important to keep track of what you brought to the marriage.
SIXTH: Keep track of your inherited funds from your family throughout the marriage
Next, if you have inherited funds from your family throughout the marriage, it’s really important to keep track of that. Whether or not you’re going to be able to keep that as your separate property is going to also depend on state-specific law. But as a general rule, if you have inherited funds and you have taken steps to keep that inherited property separate from your spouse, then there’s a strong likelihood that you’re going to be able to maintain that inheritance as your separate property. If, on the other hand, you have commingled your inheritance with funds that your spouse is using or that you’re using to support your marital expenses, then the extent to which those funds can be kept separately may be affected. But it’s just an important thing to know when you’re going through this, that those are going to be things that you want to focus on and get state-specific advice about from your attorney.
SEVENTH: obtain as much financial documentation as you can
The next thing is you should obtain as much financial documentation as you can about all of these items I have mentioned. For example, you will want to get copies of your tax returns, copies of bank account statements, credit card statements, mortgage statements. If you have a home equity line of credit, you want to have a copy of that statement. You’ll want copies of deeds to vehicles and property, and if you have life insurance policies, you’ll want to know what the terms are. You’ll also want to have copies of any type of employee benefit that either you or your spouse has so that all of these things can be shared with your counsel. And throughout the divorce process, you will be figuring out how it should all be divided and how it’s going to be divided is going to depend on the state. Some states are equitable division states, some states are community property states. Whether your assets are going to be split in half, or whether they’re going to be divided equitably, is going to depend on the jurisdiction in which you live.
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