Do you know your credit score or the details of your Social Security report? Can you find your home title, mortgage, life insurance policies, car title, auto insurance policies, tax returns for the past five years, and brokerage and bank statements for the past year? Do you know what your spouse earns or how much goes into the 401k plan annually?
Divorce is often a wake-up call when it comes to what you know and don’t know about your family’s finances.
Managing your money isn’t about knowing which stocks, bonds, or mutual funds to buy. It is about knowing what you own (assets); what you owe (litigants); What goes in (income) and what goes out (expenses). It is about paying attention to where your money goes and how it is structured.
You will be required to provide a lot of securities and documents to the court, your attorney or broker, and your soon-to-be ex-spouse. So let’s get started:
Clear a workspace and collect all your data: bank, brokerage, credit cards, etc. Other supplies to collect: paper, pen or pencil, 3-ring binder, punch hole punch, index dividers, highlighter, and a sense of humor.
First, we’ll tabulate your net worth (the difference of what you own vs. what you owe): Make a list of everything you own: a house, a 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 loans, and their outstanding balance. Keep this information stored in the first section of the 3-ring link.
Next, find out where your money is going (cash flow), or the fact that there is no evidence of where you spent all that money. The easiest way to determine your cash flow is with a computer program such as Quicken or QuickBooks. A useful site is mint.com. If you prefer not to use a computer, this can be done with Excel, columns on lined paper, or on graph paper.
To set up a budget, gather your checkbooks, check stubs and credit card statements. Give each spend 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 utility category. Don’t forget to enter your income, including income from child support and alimony. Print a report every month and a quarterly report every 3 months. Put these in the cash flow or budget section of your binder.
It may take 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 spousal support.
By getting a handle on your cash flow, you can look for places where you can reduce expenses or control spending. Try taking 10% of your highest income as savings. Then, reformulate your expenses to see if you can still manage. Use any amount of money you can save to:
• Get out of debt – Pay off credit cards and loans
• Have an emergency fund that is not invested in the stock market. Aim for at least 3 months of household expenses in savings. If possible, have an additional 3 months in a short-term CD or money market account
• Take advantage of retirement plans
Put this information in the savings goal section of the binder.
Armed with this information, counseling a certified divorce financial analyst, early in the process, can help you face the challenges of divorce with greater confidence and dignity than might otherwise be the case.