A fact of life in our society today is that approximately one out of two marriages end in divorce. The dissolution of a marriage is one of the most difficult and stressful experiences in one’s lifetime. If you are contemplating divorce you must carefully assess your financial situation and try to obtain an equitable settlement.
In Pennsylvania, equitable does not necessarily mean equal. Equitable means that the courts will recognize settlements that are fair, but not necessarily divided 50/50. Settlements may be comprised of asset distribution, alimony, and child support and debt assignment. One of the keys to a successful settlement is preparation, which includes a thorough understanding of your situation.
If you are considering divorce one of the first things to do is to gather all important financial records and data relating to your marital lifestyle. It is imperative to know what assets you own, the value of those assets and how they are titled. You will need to obtain copies of all financial statements including: investment, bank, insurance, annuity and retirement plans and tax returns. You will also need to inventory all debts such as credit card, auto, mortgage, and taxes. Determining what interest rate you are paying and the time frame to pay off each debt is also necessary. Review spending records, canceled checks, and credit card statements so that you can prepare an accurate and complete budget of your monthly expenditures. Without proper documentation it’s easy to omit, underestimate or double count expenses.
Once you have done your preliminary fact finding about your situation you should obtain an attorney to represent you. Depending upon your situation, you may want to consider exploring non-traditional alternatives to divorce, such as mediation or collaborative divorce. Either way you will still need to retain legal representation. You will also need to consult with a divorce financial analyst who will illustrate the financial status, cash flow and net worth of both parties undergoing a divorce. This type of analysis produces comprehensive and realistic projections of your post-divorce lifestyle to illustrate the short-term and long-term financial implications of different proposals. Some of the sticky issues such as employee retirement plans, real estate, cost basis of assets and tax ramifications are issues that are evaluated.
Without proper financial planning what appears to be equitable at the time of divorce may become unequal over time. More often the question to determine should not be “Which assets do you want to keep?”, but “Which ones are the most appropriate for your long-term financial security?” You need to have a clear picture of your financial outcome prior to agreeing to a settlement. As once the divorce degree is signed, the divorce is final and there is little to no opportunity to renegotiate an unfavorable deal.
Certainly two households cost more to operate than one, but many people begin post-divorce life not completely understanding that their settlement has to last for a long time – perhaps even the rest of their lives. Obtaining proper financial planning guidance from a professional is essential to assist with the transition to single life. To succeed you will need help to prioritize your financial goals, establish realistic expectations and implement strategies to help make sure you stay on the proper path to success. Your marriage may be over; however the rest of your life is still ahead so it’s imperative to develop a workable financial plan for a secure future.
Donna M. Cheswick is a Financial Consultant and Certified Divorce Financial Analyst with BPU Investment Management Inc. She can be reached at 724-837-1130 or firstname.lastname@example.org.