During the first panel of the Get Divorce series, guest panelists Julia Rodgers of HelloPrenup, author and divorced mom Dawn Drzal, and Davon Barrett, CFP® and CDFA® at Francis Financial, Inc., talked about some of the core financial aspects of divorce and marriage. Moderated by Stacy Francis, Founder of Savvy Ladies and Founder & CEO, and President of Francis Financial, Inc., and Lisa Zeiderman, Savvy Ladies Board Vice President, and Managing Partner of the law firm Miller Zeiderman LLP, the discussion touched on some key lessons for anyone going through a divorce or thinking to get married.
Watch the panel recording below and keep scrolling to read the key takeaways on how to be financially savvy during divorce and in future relationships.
Creating the Right Checklist — Key Takeaways:
1. Put a Team In Place
Having a team to support you through the prenup or divorce process is key! When faced with a stressful situation, women tend to seek the help of others, and this should be true when preparing to get married or divorced.
From the recent Savvy Ladies Prenup and Divorce panel, it was clear that many women do not have enough support. In addition to the support of their family and friends, women need a team of intelligent and savvy matrimonial professionals.
The most effective team that will deliver this holistic advice includes a matrimonial attorney, a financial advisor, and a therapist or coach to help them manage the changes and stress brought on by divorce. Other key experts may include a forensic accountant if there are concerns that assets are hidden. A business valuation specialist will also be key if there is a business.
2. Get a Consultation with a Good Lawyer Who Will Tell You the Truth
Whether you’re investigating a prenup or thinking of getting a divorce, you need someone to spell out what the future will look like under various scenarios. It’s all too easy to fall into wishful thinking and tell yourself that the prenup will never have to be enforced, for example, so why not sign away your rights to spousal support, or to believe that your post-divorce life will look just like your current one minus the nasty little irritant of your spouse! On the other hand, your 3 a.m. fears of ending up living on the street can paralyze you into doing nothing. The truth is probably somewhere in between, and there is strength in knowing what the reality of your situation is and acting on that.
3. Don’t Be Overwhelmed
Once you get advice from a good lawyer, don’t let the magnitude of the challenge overwhelm you. This is especially true of the divorce process. It’s called a process for a reason. It is a series (admittedly a long series) of small steps you must take to change your life. You don’t need all the energy for the entire task right now. You just need the energy for the first step. As Dawn’s excellent lawyer always told her, “It’s a marathon, not a sprint.” When you set the ball rolling, positive inertia will replace the negative inertia that kept you stuck in that unhappy situation for so long.
4. Know Your Assets, Liabilities and Expenses
Being in the dark about money can be costly. Spouses who handled all of the finances during their marriage have an advantage over those who did not. Being aware of everything about the assets owned as a couple is not simply an option- it is a necessity. It is essential to understand the value, location, and tax aspects of those assets and debts.
Property can include retirement, non-retirement, bank accounts, real estate, future pensions, and social security. Debts overlooked, at times, including mortgages, student loans; retirement plan debt such as a 401K loan; credit lines; credit cards; business loans with a personal guarantee, payday loans, and personal loans.
Most people know what they earn each month but can’t pinpoint exactly where their money goes. Therefore, it is impossible to be fully confident that a divorce settlement is financially feasible without knowing how much money is being spent every month.
5. Gather All Documents of the Marital Estate—Preferably During the Marriage
It’s important to have documentation of your spouse’s assets and liabilities as well as your own—that is, the entire value of the marital estate. While equitable distribution doesn’t mean equal, it’s impossible to get your share of the assets if you can’t identify what they are. Some example of what you’ll need include tax returns, credit card statements, bank and brokerage accounts, retirement accounts, and deferred and other executive compensation. If you can’t gather all this during the marriage, hire a good attorney who will help you obtain the necessary documents and receive your fair share.
6. Maintain a Distinction Between Separate and Marital Property
It’s important in a divorce action to establish what is your property (that is, assets you brought into the marriage) vs. what you accumulated during the marriage.
The name on the title doesn’t necessarily determine the owner. Property acquired during the marriage is generally considered to be marital property, even if it is just in the name of one spouse (i.e. – A 401(k) that was funded during the marriage). “Property” in this case means not only “real property,” such as houses, condos, and coops, but also financial and retirement accounts, pensions, restricted stock, and other executive compensation.
If you want to assert a claim to separate property, it is your burden to prove that you have kept it separate, and you must produce financial statements identifying the asset and tracing it to show that you kept is separate and apart and did not commingle it with marital property. These documents could include proof of inheritance, closing documents for real property, or brokerage statements. You must be very careful that separate property doesn’t accidentally or intentionally become “commingled” with marital property during the marriage.
As Davon Barrett always says, if you add water to a glass from a pitcher, all you see is water. You can’t tell what water was already in the glass. Be aware, too, that financial institutions only keep documents for seven years, so safeguard your documents in a secure place.
7. Understand Tax Impact
Understanding the tax impact of taking one asset over another is key. For example, while two assets or investment accounts may have equal dollar values, their post-tax value could differ vastly. This is especially true when comparing the value of a 401K to a checking account.
Too few people sell their primary residence without worrying about taxes that are due. The sale of a primary home may create taxes if each party’s gain is over $250,000. Coupled with selling costs, taxes can take a huge bite out of the post-sale house proceeds.
8. Get a Prenup, and Make Sure It’s Negotiated Fairly and Enforceable
If you’re getting married, you need a prenup. There’s a misconception that prenups are only to protect the wealthy spouse from the non-monied spouse, but in fact prenups can be a good way to level the playing field and ensure that the stay-at-home mom or dad is provided for along with the wage-earner. In order to negotiate the prenup fairly, however, you need to allow sufficient time to gather the relevant documentation about both parties’ assets and liabilities and to review the contract with your lawyer. The prenup needs to be fair enough to hold up in Court, if that becomes necessary, and it needs to be filed and signed properly according to the rules of your particular state. Some states are very specific to the rules and if you don’t follow the rule, the prenup will be null and void, rendered useless.
9. Divorce Means Financial Education
“For many women—and I’m speaking from my own experience—the divorce process is the first time they come face to face with the financial realities they were either kept from or were shielded from, depending on how you look at it. Either way, it’s a harsh awakening. It is, however, worth it. To overcome fear and learn what your assets and liabilities are, how to budget and invest, how to conquer credit card debt, how to ensure a safe retirement—all of these are the gateway to a new freedom and self-respect. It’s hard work, but you’ll be happy you did it.” Dawn Drzal
As you embark on your divorce journey you need to have a financial roadmap so you can support yourself financially in your next chapter. If you need guidance or have any financial questions, contact the Savvy Ladies Free Financial Helpline today and get free mentoring from a financial advisor.