Money & Divorce - First 5 Things to Know
When you think about money and divorce, what comes to mind?
Scared. Not enough. Unfair. Overwhelmed.
Those are the words that come up the most for my clients.
There’s no question that money is one of the most stressful parts of divorce.
In fact, worrying about money - who gets' what, who pays what, how much you’ll need, how much you’ll have - often drives up conflict and costs.
So how do you keep that worry, fear, and overwhelm at bay? By learning these first five things to know about money during divorce.
Don’t just take it from me though, these five gems come from the Co-Founder of Divorce Coaches Academy, certified divorce coach, CDFA, and mediator Debra Doak.
1. Understand the process - learn what you need to know.
The divorce process includes financial decisions such as the division of assets and debts and determining child and spousal support. It also includes financial processes such as disclosure and discovery.
In your state, it will be important to know how spousal and child support are determined. You’ll also need to know what your state’s guidelines are for the division of assets and debts - are you in a 50/50 state or an ‘equitable division’ state? And what the heck is the difference, in practical terms?
You can research each of these decisions and processes on your own or work with a divorce coach to get a clear understanding so you’re more prepared to make these financial decisions.
Understanding the process also means beginning to gather important financial and legal documents, as you are able.
The disclosure process means you are entitled to have the financial information you’ll need to make these decisions. Each spouse is expected to provide all relevant financial information, including bank statements, investment accounts, mortgage statements, W2s, and taxes, to name a few. The discovery process is when you have the opportunity to ask for documents you think may be missing or need more information on. For example, if you don’t understand a recent change in deposits to your spouse’s checking account, you can request their last five pay stubs.
2. Review your marital lifestyle - understand where you’ve been.
You’ll want to get a clear picture of spending habits for you and your spouse while you were married. Were you a family who took luxury vacations every year? Did you tend to shop for groceries, food, and home items frugally? When you hone in on the spending habits for your life as a married couple, it can give you valuable information about what your expenses may be in your post-divorce life.
I’m not saying you’re going to be able to do all of the things you were able to do before. The reality is that it costs roughly 30% more to support two households after divorce. But bringing what you were doing before (and how much that cost) into sharp focus will help you begin to figure out how much money you’ll need post-divorce.
Reviewing your marital lifestyle can also help you document the need for receiving spousal support. Spousal support is often a flashpoint for divorcing couples so getting well-informed will help you keep down stress levels and may well save you money that you would otherwise spend fighting about it.
Preparing questions for an attorney with your divorce coach can help you get the information you need.
3. Build your post-divorce budget - this will be your decision-making filter.
Now that you have the information from your spending patterns and expenses from when you were married, you can start to determine how those expenses may change once you’re divorced.
Will you continue to get your hair done every month or can you make do with every other month? Will you need the same amount of money as before for medications and supplements? Will your phone bill and health insurance need to change? If so, what will the difference in cost be?
Begin to sort things like these into ‘wants’ vs ‘needs’ to create opportunities to cut expenses. That will help you determine if extra income is needed. It will also help you set realistic expectations for yourself. Working with a coach can help you look more objectively at what is a want and what is a need so that you feel more confident about advocating for yourself.
Armed with this realistic and detailed information, you have what you need for proposal development and settlement agreements.
4. Identify goals and priorities - know where you’re headed.
Identifying your goals and priorities will help you know what’s most important to you and why.
For example, one of my clients told me one of her goals was to keep the marital home. This is an example of a positional goal, which is less helpful than an interest-based goal.
Here’s what I mean.
When my client said she wanted the house, she was setting up a win/lose or black-and-white proposition. Either she gets the house and wins or doesn’t and loses. To figure out her interest-based goals, we explored WHY she wanted the house. She explained that the house represented stability for her children with special needs. Since the house is paid off, she also liked the idea of keeping her monthly expenses low by not having rent or a mortgage to pay.
We discovered that her interests were stability and comfort in affording monthly expenses. Now we had some flexibility to work with. If we could find other ways to ensure stability for her special needs children and be able to comfortably afford her monthly expenses, she got out of black-and-white thinking, which is limiting.
Negotiation means being willing to give up something you want for something you want more. No one gets everything they want in divorce. So if you can be flexible and strategic by giving up things you want for things you want more, you’re more likely to agree sooner and with less conflict.
5. Embrace BOBO - prepare to make hard choices.
BOBO, as Debra fondly calls it, refers to the Best Of Bad Options.
The idea here is like being at a buffet where all the options are things you don’t like and a couple of things you absolutely detest.
Would you rather be the one deciding which of those things to put on your plate or would you rather someone else choose for you? In that case, what if that person chooses the thing you hate the most?
In divorce, you’re not going to get everything you want. Compromise is part of the process. When you’re the one making those hard decisions, you have agency. When someone else, like a judge, makes them, you’ll be stuck with what they decide.
Working with a coach can help you decide what you choose from the BOBO buffet.
The first five things to know about money in divorce matter.
When you approach the financial decisions of divorce from a fear-based perspective, you end up
Unprepared
Using a win/lose mentality
Stuck in positional thinking
Holding onto unrealistic expectations
Stuck in the problem cycle
Unwilling to resolve disagreements
When you approach those same decisions with a strategic approach, you end up
Informed and prepared
Goal-oriented
Solution-focused
Holding realistic expectations
Ready to solve problems and get out of the problem cycle
Decision-ready
Information, a plan, and the right support decrease fears about money. Fewer fears about money mean less expense and less conflict.
You CAN figure out the money stuff in divorce and when you DO, you’ll create better outcomes for yourself with less stress and more peace.
If you’d like some help figuring out your plan for divorce, use this link to schedule a consultation.
