I have been approached by many matrimonial attorneys, therapists, and divorce coaches who ask me to help their clients with their finances before, during, and after their divorces. Many people getting divorced, both men and women, may be smart, accomplished, or at the top of their professions, yet were not the ones handling the finances in their marriage.
Many of these clients don’t know what they spend, how much their mortgage is, what assets they have, how much debt they have, what is in their investment accounts, or what is in their pension and retirement accounts. If they weren’t the ones paying the bills, doing the investments, or meeting with the wealth manager, how should they know?
I speak to many clients who say they have no idea what they have and what they would get if they got divorced. Many don’t even know if they can afford to get divorced. If you’re told by your spouse you won’t get spousal support, alimony, or child support after divorce, it’s best to brush up on your knowledge of your financial situation to prepare for what is ahead. Being less financially literate should not be a source of embarrassment, and it should not stop you from getting out of an unhappy marriage. Working with a professional is the best way to arm yourself with information and be prepared for what’s to come.
What Is Financial Literacy
Financial literacy is knowing and understanding financial concepts, like budgeting and investing, and using these skills to make smart decisions regarding your personal financial goals. Financial literacy, or financial awareness, also means to have an understanding of your current financial situation, where your money is coming from, where it is spent, and how you’re working towards future financial goals.
Why Financial Literacy Is Essential in Divorce
Financial literacy is crucial in order to navigate the complexities of divorce and to reach your financial goals in the future to build long-term financial stability. There is no better way to prepare for life after divorce than becoming financially literate. While the road ahead may seem long, we’ll break it down for you to make it more manageable. First, meet with a matrimonial attorney so you can learn more about the process and understand all your options while going through the divorce.
Then, meet with a Wealth Manager who is a Certified Divorce Financial Analyst® (CDFA®) for help figuring out what is yours, what is your spouse’s, what you own jointly, and what can be split. A CDFA® will understand different state rules and can work with your matrimonial attorney to determine the best outcome for your situation.
If you didn’t initiate the divorce and are being told “I’ll take care of you and the kids”, you need to know the specifics on how much you’ll need to maintain your lifestyle. A CDFA® can help look at what you spend now and what you can expect to spend after the divorce. They will work with you on a budget and splitting assets. A CDFA® will also help you take into account who will keep the house, or whether it needs to be sold, how retirement accounts, pensions and stock options will be split, and the tax ramifications of these decisions.
How Do I Become More Financially Literate?
The best way to improve your financial knowledge is to gather all of the documents and information that you can. Here is a list of documents to get you started:
- Bank statements
- Credit card statements
- Social security statements
- Retirement plan information
- Pension plan information
- Tax returns
- List of jewelry you own
- Artwork
- Collections
- Cars
- Insurance policies
- Business partnership agreements
- Business documents, assets or appraisals
Gathering paperwork can be stressful and overwhelming without proper financial knowledge, so don’t hesitate to have your CDFA® work with you and take it step-by-step. They can help you organize the paperwork so that your matrimonial attorney will have everything they need to start the process and understand what the various outcomes might be. See our download our Divorce Checklist here to get organized and feel better prepared to manage your personal finances.
Once these documents are gathered, your CDFA® can work with you to create a lifestyle analysis, which encompasses a roadmap of where you are, where you are going, and a plan of how to get there. It will help spell out how you are living now as a married couple and what you will need to maintain that standard of living in the future, if that is possible. After divorce, two households will need to be supported vs just one. This means that sometimes it is not possible to continue to live the way you were living when it was just one household. After divorce you should be prepared to have to refinance the mortgage, downsize, cut down on expenses, find a new way to earn money, or see if you can save on insurance policies. A lifestyle analysis is an essential part of the financial planning process to visualize what is and what is not realistic for your budget moving forward.
A More Financially Aware Future
Consulting a professional is the best way to ensure you’ll be able to stand up for yourself during divorce, and you’ll come out of the situation more financially aware and confident in your abilities with a plan moving forward. Knowing what to expect, and learning the steps to take for a successful future will empower you, and reduce financial stress during this difficult process. Contact a Wealthspire advisor today to get started on your financial literacy journey.
