Going through a divorce is one of the most stressful events that a person can go through in life. Besides the emotional stress, nearly everyone who goes through a divorce can expect a lot of financial stress. Men especially need to prepare, since many courts will grant assets to non-working spouses and mothers of small children sue to the belief that women in these circumstances will have decreased earning potential over the next several decades. Fortunately, there are ways to financially prepare to go through a divorce.
Ideally, start preparing before you announce or file for the divorce. As soon as paperwork is filed, courts in many states will immediately freeze all joint accounts and assets. This makes it critically important to set up at least a checking and savings account in your own name before filing. Try to have enough money in the accounts to cover basic expenses for at least six months. Remember that your expenses will change after moving out and living on your own, so plan accordingly. Ideally, also set aside money in the savings account to handle emergencies such as car repairs, as well as money to cover the purchase of new household items such as small appliances that are necessary to setting up a new household.
While some men choose to save this money on their own, many more will need to liquidate assets to have the cash on hand. Try to plan on selling assets at least thirty days before selling, since some states allow a judge to freeze any assets that have been recently transferred from joint accounts as well. Try to avoid cashing out protected retirement plans or other assets that you will have to pay penalties on.
Next, get a statement of your net worth together. Specifically, create a list of all joint and personal assets that you and your wife have. Also list any joint and personal debts, including all credit card debt. Take this list to your lawyer. While it is impossible to predict exactly what the divorce settlement will grant, many states have formulas that the judges typically use as a guideline for dividing assets. Your divorce attorney can look at the value of the assets and debts held by you and your wife and give you an idea of what your part of the settlement will be.
By providing your lawyer with your most recent income statements, the lawyer will also be able to determine the amount you will probably need to pay in alimony and child support. Using all of this information, put together a new budget showing your new expenses. Make sure that you can pay your regular bills and credit card debt every month without touching a savings account. For the first year after a divorce, focus on adjusting to your new lifestyle and paying off the debts and bills associated with the divorce rather than building savings.
While this advice goes against how many long-term savers feel, it is important to realize that at this point creating financial and emotional stability is more important than building savings. Realize that divorces are expensive, a lawyer will typically charge over $100 an hour plus expenses. It is estimated that a typical person going through a divorce can expect to pay about 10% of their net worth to a lawyer in legal fees alone. Retirement accounts and defined pension plans can be subject to be shared with an ex-spouse.
In addition, the judge may need to order that certain assets be sold in order to be divided evenly. All of these changes to a portfolio will take several months to complete, and it will probably take longer to review the changes and develop a new investment plan. While it may be possible to start rebuilding wealth sooner, expect it to take at least a year to simply stabilize your portfolio and establish a new budget.
Finally, be sure to be honest about all of your financial dealings with your lawyer and the judge. While some people will attempt to hide or devalue assets during a divorce, today’s digital banking makes it next to impossible to do this successfully. Being honest will improve your relationship with the court, making it easier to make your case for things that are truly important, such as child custody issues.
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