A WOMAN’S GUIDE to MONEY and DIVORCE
One thing I learned from a friend who recently went through a contentious divorce is that knowing about your finances is as important as knowing your legal rights.
Yet regardless of how much you know about your family’s finances, you’re likely to be gobsmacked by the sheer volume of information you’ll be asked to provide.
If you are in this situation, one of the first things you’ll have to do is compile a statement of net worth, listing such items as income, expenses, assets and liabilities.
“This can be a huge challenge if you don’t pay the bills or know the passwords,” says Lisa Zeiderman, managing partner at the law firm of Miller Zeiderman in New York City. “That’s why it’s so important to be on top of your finances.”
If you have been considering divorce but haven’t filed yet, use this period to “get your ducks in a row,”advises Kimberly Foss, founder of Empyrion Wealth Management in Roseville, California. That means assembling your divorce team, which, in addition to your lawyer, can include a financial adviser (you might look for one who is a certified divorce financial analyst) and even a therapist.
Start your search for financial information with your tax return, says Stacy Francis, founder of Savvy Ladies, a group that empowers women to take control of their finances (www.savvyladies.org).
To make the task less daunting, Francis recommends that clients take things one step at a time. In week one, for example, you could focus on bank statements; in week two, brokerage and retirement accounts; liabilities in week three; and so on. By week six, your goal is to have a list of all your assets, debts and expenses in detail.
If you’re not on top of your finances or your divorce is acrimonious, do the best you can. “I’ve had clients bring me bits and pieces of information,” Zeiderman says.
Your legal counsel can subpoena records or even engage a forensic accountant to find hidden assets. When it comes to dividing those assets with your spouse, one big mistake women often make is taking the house when they can’t afford it.
“You don’t want to be house rich and cash poor in the transitional stage after divorce,” Foss says. And if you keep the house and sell it later, you’ll qualify for only half of the $500,000 capital gains exclusion.
Another big mistake, Francis says, is “not looking at assets with tax goggles.” For example, it doesn’t make sense to trade a Roth IRA, from which withdrawals are tax-free, for a traditional IRA, on which you’ll owe taxes on distributions. And you may owe hefty capital gains taxes on appreciated stock.
Don’t neglect retirement accounts. You can get a share of your spouse’s pension or 401(k) plan by filing a qualified domestic relations order (QDRO), which tells an employer how to split benefits.