Divorce: Financial Survival Skills

April 29, 2013

A divorce can take its toll on you financially, as well as mentally and physically.

For emotional support, you might seek the help of family, friends and a professional counselor. To assist you with your legal rights and responsibilities, you would hire a divorce attorney.

To ensure your financial well-being, you should seek the professional advice of a certified public accountant who is well-versed in the financial aspects of matrimonial accounting.

Decisions you make today can financially impact your life – as well as the lives of your family members – for some time into the future. That’s why it is so important to obtain the advice of financial professionals when you are contemplating a divorce, going through the process and recovering after it is finalized.

Whether you believe your spouse will be reasonable and cooperative or not, you need to know what documents to gather, what to expect and how to protect yourself monetarily from the very beginning of the divorce proceeding. A CPA can help you budget, minimize your tax situation, analyze alimony payments, uncover hidden assets and develop an equitable distribution plan.

How can you prepare financially for a divorce?  

Even if you anticipate your divorce will be amicable, it is important for you to gather essential financial documents as soon as you are contemplating the dissolution of your marriage or believe your spouse might be. These items might include:

• Title to your real estate
• Real and personal property tax receipts
• Income tax returns for the past three to five years
• All insurance policies
• Market values and cost basis of your assets
• Bank accounts
• Mortgage documents
• Note, loan or credit card balances
• Brokerage accounts
• Stocks and bonds
• Retirement plans including pensions
• Wills

In preparation, copy and catalog these documents, including the institution’s name, contact name, address, account number, balance, interest rate and other pertinent information.

Why do you need a CPA?

While your attorney provides legal counsel during your divorce, it is your CPA who provides you with the financial expertise you need during this difficult time.

A CPA can help you gain insight into your current financial state and develop a better understanding of your future financial position.

Focusing on reaching a fair and equitable settlement is key. With more accurate information available, you and your attorney will be able to negotiate effectively and ensure a reasonable resolution of all financial issues.

A CPA can also help you determine marital and nonmarital assets and help you minimize your legal fees. If minor children are involved, determining your financial needs for parenting is an essential area where you will need assistance.

How will you know what is fair and equitable?

In most divorce cases, the reality is that both spouses will have less disposable income because they no longer benefit from the economic advantages of a single residence with shared costs. Your accountant and attorney will work with you to ensure that your marital assets, such as your home, bank accounts, pension plans and other assets, are equitably divided.

They will also work together to ensure that all the debt that accrued during the marriage is accounted for and appropriately allocated to the parties. Your CPA will value your assets, determine your liabilities, estimate your immediate financial needs, evaluate your net worth and develop a realistic budget for you.

In looking toward the future, your CPA will help you prioritize your financial goals, forecast your future earning potential, estimate educational costs, examine tax-saving strategies and project your retirement needs to meet realistic expectations and help you transition from a married to single lifestyle.

What if you own a business?

If either spouse owns a closely held business, a forensic investigation into its finances might be necessary to uncover any potential hidden assets and perquisites, and establish a value for that business.

Using a combination of accounting, auditing and investigative skills, a forensic CPA will examine documents such as tax returns, financial statements, etc., and analyze your family lifestyle to determine if it is consistent with the income being reported.

Even if there is no business ownership, your accountant can use these same techniques on the personal assets of your spouse to make sure that all accounts are known, the values are proper and funds have not been diverted.

Your accountant will also help you determine the short-term and long-term impact of any proposed divorce settlement. Whether it is outside or inside the courtroom, presenting clear, concise information will enhance your ability to get the best possible, and most equitable, result.

Is mediation an option?

Divorce mediation takes a non-adversarial approach to the dissolution of a marriage and puts the settlement power into the couple’s hands.

A mediator who is professionally trained in this process helps spouses to negotiate on their own with the ultimate goal of agreeing on a mutually acceptable settlement. Each spouse may or may not have a lawyer actively participating or consulting with them.

If you and your spouse are agreeable to a fair settlement, mediation could save you thousands of dollars in legal and other fees.

For example, through mediation you might agree to sign over investments rather than liquidating them, resulting in substantial savings of the fees and taxes you would need to pay if you were forced to sell the shared investments by court order. It is important to have sound financial advice before entering into the agreement.

While not all divorce situations are conducive to mediation, those that are could provide considerable cost savings and other potential benefits.

Regardless of what stage you might have reached in dissolving your marriage, it is important to seek the advice of an accountant with the expertise to help you survive financially.