How to Get Your Finances in Order Before a Divorce
Many people going through a divorce experience a combination of emotional and monetary concerns. Fortunately, they can minimize the latter by taking a hands-on approach to organizing their finances.
Once a married couple decides they want to part ways, each party should hire a divorce attorney. Many attorneys don't charge for the initial consultation, which enables clients to begin the process without having to immediately shell out hundreds of dollars for legal advice. Some divorce attorneys charge by the hour (average rates run anywhere from $150 to $1,000), while others charge a flat fee. Costs can vary greatly based on the case's complexity and where the client lives, says Brian Freeman, a divorce attorney in Jersey City, N.J.
For an open-and-shut case (where both parties are amicable and the finances are in good working order), Freeman charges a flat fee of around $1,200 - not including the filing fee, which costs, on average, $100 to $350, depending on the county.
Nonetheless, people can save a lot on legal fees if the case requires less "discovery" work - meaning clients gather the necessary financial documents on their own time, rather than leaving it to their attorney. However, the legwork can be problematic if you don't know what documents you need and where to look for them.
[Read: 5 Ways Sharing Finances Can Be Bad for Your Marriage.]
The undertaking is easier for couples who want a seamless and peaceful divorce, and are willing to work together. Even if the relationship doesn't end on good terms, those who are financially prudent should consider aiming for an uncontested divorce to save money.
However, if you and your spouse can't find middle ground, you can still avoid blowing money on attorney-executed discovery fees.
The required documents begin with mandatory disclosures, which kick in at the start of the divorce proceedings, says Debra Freedman, a certified financial planner in Miami. The disclosures require both parties to produce a large number of financial documents. You might consider hiring a certified divorce financial analyst, who can help you compile this information and offer advice on what's worth fighting for when it comes time to negotiate. CDFAs charge an average hourly rate from $150 to $400 - but those costs may be lower than what your attorney charges.
[Read: Taking the 'Permanent' Out of Permanent Alimony.]
All divorce courts require a financial affidavit, which outlines your earnings, living expenses, assets and liabilities. However, states have different definitions of what mandatory disclosures include. To get an idea of what you'll need, Freedman (who is also a CDFA) outlines some of Florida's requirements:
-- Federal/state/gift/intangible personal property tax returns from the last three years
-- Forms W-2, 1099 and K-1 from the past year
-- Three months of recent pay stubs
-- Specified loan applications, deeds and lease agreements
-- Bank account statements, including checking, savings and credit cards
-- Retirement plans
-- Life insurance
Retrieving such information can prove overwhelming, Freeman says, "especially if you are a stranger to your financial situation" and aren't as well-versed in your family's finances. If you encounter problems, consult with your attorney, who can offer advice on how to collect and prepare these documents. An attorney can also assist if you have trouble accessing any information, possibly due to password protections or accounts that are only in your spouse's name. The solution may simply be a phone call from your attorney to your spouse's, asking for all of the documentation needed, Freedman says.
If you have children, calculate the costs of their food, shelter and clothing; most discretionary expenses are irrelevant. "Child support doesn't pay for things like private school, or karate, or dance," says Len Nassi, a certified financial planner and CDFA in Hollywood, Fla.
In addition, there are some commonly overlooked assets. "A lot of times with collectibles, one party might look at them as things they just like to collect and love, but it can turn out they have a [significant] dollar value," Freedman says. Experts say it's also worth hiring an appraiser if you have valuable possessions, like jewelry or art. Big-ticket items, such as houses, cars and vacation homes, must also be assessed for their current value.
Check your credit report. Gerri Detweiler, director of consumer education at Credit.com, says it's crucial to look at your credit report before a divorce trial. Review your credit history to make sure your spouse hasn't missed payments on any joint accounts, opened any credit cards in your name or engaged in other behaviors that may have damaged your credit. (It's also just a good habit to vet your credit report for errors every so often.)
After either party has filed for divorce, begin separating your finances, starting by closing joint accounts. "As long as those joint accounts are open, you're both 100 percent responsible for any debt incurred by either person," Detweiler says. If you can't afford to pay off debt on a joint account, create a payment plan with your spouse, so you have a timeline of when you will be able to close the account.
[See: 50 Smart Money Moves.]
The bottom line. It requires time and effort, but you can save a substantial amount of money in discovery fees by compiling your personal financial documents without much help from your attorney. Lisa Hanson, financial adviser at Firstrust Financial Resources in Philadelphia, says "when you meet with an attorney, you're on the clock," so keep the clock face still if you can.
