It is important to look at your pre-divorce expenses, income, assets and budget.
The pre-divorce expenses are essential to look over and understand. There will be some new expenses that you will be responsible for, that prior to divorce you were not. There a lot of tools you can use to access your budget. The first tool should be your online banking (if applicable). Most people utilize online banking to pay bills and write checks, with this information, we can pull an annual report that will show all the categories where you are currently spending in the household.
There are other expenses, such as auto insurance policies, possibly medical insurance and expenses that reoccur on credit card bills. We would need to collect a similar report from the credit card companies to help assess your current budget.
With these reports, we can get a good summary of what your annual expenditures are. It is important to have the current expenses because when you go into the divorce process, you will be asked to justify these expenses. The more documentation you supply to the legal team regarding these expenses, the better it will be with negotiations for support and settlement purposes.
You will need to gather information regarding your spouse’s income. This should also be available via your online banking if their paychecks are being auto or manually deposited into the joint bank account. However, if your spouse is self-employed, this may take more time inquiring into other accounts, such as a business account to see what the actual income is. If none of the above is available, you can always rely on your tax returns. It is a good rule of thumb to have at least the last 3 years of your joint filed tax returns, and/or business tax returns to see what both spouses have earned. If you do not have 3 years of tax returns, you can go to your local IRS office and request the documents or request them online
Helpful Link to Understand 1040 Itemized Lines: https://www.thebalance.com/understanding-form-w-2-wage-and-tax-statement-3193059
Pre-divorce assets will involve pulling statements from every institution where you believe there is an asset. It is recommended to run a credit report to see if there are any assets or liabilities you are missing. Gather information from the three national credit reporting agencies: Equifax, Experian and TransUnion. As you are going through the discovery part of the divorce, there will be a formal process of disclosure where each party must disclose what they know about the assets, debts, income and expenses. This will be used in the preliminary and the final part of the divorce settlement. Once this information has been submitted, it will be discussed with your spouse and legal teams.
Creating an Estimated Post-Divorce Budget
Once you go through determining the pre-divorce expenses of income, assists and budget, then we will go through the expenses and income, and we would treat it like you have already gone through your divorce.
We will look at any income that you may have, and this is key information because, when the legal teams try to settle on support, you will need to know what your expenses might be post-divorce. Divorce support numbers come in a range, and you need to be confident that the support number will meet your worst-case scenario budget.
The post-budget expenses could involve relocation. If you sell the family home and now need to either purchase or rent another home, there is the process of looking at rental properties or figuring out what it will take to purchase another home in your desired location.
Other expenses could include medical insurance costs. Before, insurance may have been carried under your spouse and now you may have out of pocket pre-existing medical expenses that need to be added to the budget. Also, consider your transportation. You may need to lease or purchase a vehicle. That amount needs to be added into the new budget.
These are some of the scenarios we will be looking at to predict what your expenses could be post-divorce. Then we can determine if the support number the legal team is offering is adequate. If the support number is not adequate, we will come up with a game plan with how you are going to increase your income, or further your education in preparation for in a few years, to increase your income to help with the post-divorce expenses.
Understanding Current Investments and any Possible Taxable Liabilities
You should rely heavily on your financial planner to explain what the retirement, stock or other investments are and if there is any long or short term taxable liabilities on these investments if they are divided. Also, your risk tolerance as an individual post-divorce will be different. Before you were married and investing together, now as an individual, it needs to be more conservative and as those investments come over they will need to be adjusted. This is a continual discussion you should have with your financial planner, because by the end of your divorce, you want to have all of this in place.
Take your time to fully understand your income. Discuss how much is needed for your day to day living expenses. And investigate assets that can be liquidated, if needed.
If you are unaware of your current budget, you may agree to a settlement that could potentially put you in financial distress after the divorce.