Divorce can be painful, no matter who you are or how much you have to divide. It’s the dissolution of your family unit. People don’t tend to enter into a marriage with the intention of having it fail.
To make matters feel worse, you and your ex-partner will now have to embark on the tricky work of splitting your wealth. If you’re fortunate, as I was, you’ll be divorcing amicably from a partner who shares your priorities — in our case, that was our child. Working with a mediator, we had a settlement and custody agreement arranged in a matter of weeks.
But in more than 20 years as a financial advisor, I’ve seen countless women walk away from divorces having surrendered more assets than they should have, simply because they wanted out as soon as possible. While I’m not a divorce attorney — or a therapist — I’ve gathered some wisdom from past clients and my own experience. It can be distilled down into four essential tips. Remember these words as you head to the mediation table.
Do your best to keep your emotions in check and your lines of communication open while you consider the big picture and your (hopefully shared) goal of moving forward. Can you and your ex share what you each think would be an optimal and realistic financial outcome? Can you agree on a mediator that you both trust?
For me and my ex-spouse, committing to open communication before we even hired a mediator benefited both of us in the long term. It also helped us save money (especially on attorney fees) and valuable time. If emotions are running high, you may also want to consider whether a therapist might help your family communicate, be that just at the outset or throughout the whole process.
The more you understand your current financial situation, the better. That’s true always, but especially when you’re heading into divorce proceedings. In a 2018 survey by Worthy, nearly half of divorcing or divorced women reported being “met with surprises” during or after the process.
You can avoid many of those curveballs by gathering and reviewing your financial documents and sharing them with your mediator, attorney, or other trusted advisors. That way, you and your team will have a complete picture of your finances before you head to the bargaining table. These documents include:
A complete list of your assets, plus asset account statements. I’m talking real estate, stocks, bonds, private investments, stock options, pre-IPO stock, operating leases, promissory notes, crypto, gold, etc. Determine whether each asset is liquid or illiquid (aka not easily sold).
Bank statements and a list of debts, aka liabilities. Include things like mortgages, secured lines of credit, personal loans, and credit cards.
Past tax records. I know this can be a pain in the butt. But having them in hand can really help expedite the settlement process.
Documents that show how your accounts are titled. Are they individually owned, or jointly held in both of your names? Or maybe they’re inherited property? Get title information for all asset and debt accounts. You can usually find it on your account statements — otherwise, reach out to the financial institution for help.
Your insurance policies, held both together and separately.
In a divorce, there are many different ways to get to an amicable and equitable division of assets. But no one can make good decisions if they don’t understand all their options. Educating yourself can help you make your settlement as fair as possible for everyone involved.
The first step is to evaluate how your financial situation might change under different income and expense scenarios in the future. This step was fairly straightforward for me because I had handled all of the household finances, including our investments, our budget, and our taxes. But even with a firm grasp on our family’s financial picture, I still had to estimate what might change in the future.
Consider these questions:
What do you estimate your income will be, post-divorce? Consider, too, how you might make room for the unexpected. At the time of my divorce, I didn’t know that I would switch jobs and that my income would change drastically. Thankfully, my partner and I structured an agreement that would be flexible from year to year up through a specific date.
What will your monthly expenses be? How might they change in the future, perhaps for a child’s college tuition or in the event of a disability? A financial planner can help you with these first two steps, if you aren’t sure.
How will you need to file your taxes when you’re separated, and then when you’re divorced? As head of household, married filing separately, married filing jointly, or single? Work with an accountant or tax attorney to understand what might be right for you.
When might your income (or your ex’s income) dip, or cease altogether? If one of you retires, what will happen to alimony payments? Will alimony need to be reported as taxable income by the person who receives it? Your financial advisor and / or accountant can help you out here.
What are the tax characteristics and values of all the assets, including stock options, real estate, and private investments? For example, if income is distributed, would it be classified as a capital gain or ordinary income? Also look at your assets’ future appreciation potential, not just their current fair market value. Your accountant or financial advisor can help you here, too.
With those estimates (and your list of existing assets and liabilities) in hand, you’ll be ready to start asking questions and educating yourself about possible and realistic settlement outcomes.
Let’s take the family home, for example. Who (if anyone) will live in — and ultimately own — the home after the divorce? Is keeping it even the best option? (I’ve seen people feel so emotionally tied to their home that they were willing to relinquish other assets with an uncertain future value — like shares in a private company — and potentially limit their future net worth.) How might one spouse buy out their ex’s share of the home? How will payment for that share be sourced: from cash or a private loan, or maybe by relinquishing a larger portion of their retirement assets? What’s the best timing for this buyout: one payment now, or installments over time? Finally, how will the value of the home be assessed: maybe using current market values, or a five-year average?
Talk through your questions and options with your divorce attorney. Understanding what’s possible, realistic, and best for you can help you plan.
The emotional energy it takes to work through divorce can be agonizing. As I mentioned, I’ve seen too many women throughout my career sacrifice their own future well-being because they just wanted it all to be over so they could leave as soon as possible.
So as important as it is to do your research, it’s just as key to recognize that right now, you may not always be your own best advocate. My advice is to start building a team of trusted advisors (like your financial advisor, and the others I mentioned above) who can be there to support and help protect you and your future before, during, and after the divorce. Then delegate as much of the heavy lifting as you can, as soon as possible. You’ll thank yourself later.
Divorce will never be easy, but preparing as best you can with these four steps — communicate, investigate, educate, and delegate — can lighten the load.
Connect with our all-women team of Ellevest Private Wealth advisors to learn more.
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