When the decision to divorce has been made, many individuals want the divorce finalized as quickly as possible. However, those who act in haste and fail to take steps to prepare for and address both the financial and emotional implications of divorce, could ultimately end up losing assets and future financial security.
To prevent the likelihood of agreeing to a divorce settlement that favors a soon-to-be ex-spouse, individuals going through a divorce are advised to take steps to understand both the current and future financial big picture. While this advice may seem obvious, for many, obtaining an accurate picture of the financial health of both oneself and a soon-to-be ex-spouse can be challenging.
There are a number of factors that influence an individual's financial situation that must be considered during the divorce process. In addition to income, the assets and liabilities of each spouse must be accounted for and taken into consideration. For example, in addition to an annual salary, one spouse may consistently receive dividends from investment accounts. Because things such as child support and spousal support are based on net income, an individual would be wise to take the time to discover all possible sources of income.
In addition to income, time should also be spent to determine assets held in bank accounts, investment accounts and retirement benefit accounts. Year-end documents related to total assets held in bank and investment accounts can be easily obtained. Information related to the value of other assets such as a stake in a family business, however, may be more difficult to determine.
Once the total value related to income and assets has been determined. Financial liabilities must also be identified and taken into account. To gain a more accurate picture of one's overall financial health, debts related to outstanding car or home loans as well as existing credit card or medical debts should be identified. Figuring out liabilities can also aid in the divorce settlement process as taking certain liabilities, such as a mortgage, into consideration may serve to benefit one during the settlement process.
In many divorces, emotions run high and may serve to cloud an individual's ability to rationally approach the divorce process. Having a clear picture of one's financial health along with that of a future ex-spouse can aid in ensuring the divorce settlement process is dominated by hard numbers and not hard feelings and assumptions.
Source: CNBC, "Getting divorced? Get organized first," Valerie Adelman, March 9, 2014