My clients bring a range of financial expertise to their divorces: some are themselves financial professionals, others are successful business owners; some are doctors, some lawyers, some stay-at-home parents, some free-spirited entrepreneurs. Often the higher earning spouse turns out to have no idea about the family financial situation because their spouse has taken on that responsibility. Sometimes neither party has lived on a budget. I work with my clients to develop a post-divorce budget, so we can determine the client’s ability to pay alimony, or their need for it, depending on the situation.
For clients who aren’t used to handling their own finances, or for clients who will be coming into a large sum of money via property division or alimony, a financial advisor can be a significant asset in planning for life after divorce. In a situation where the parties have built their entire financial position during the marriage, with no pre-nuptial agreement, each party will likely leave with close to half the marital assets, which can be challenging if one spouse has made most of the decisions with regard to those assets throughout the years. A financial advisor is key to developing a plan for investment, as well as spending. For clients who may be paying significant alimony, as well as splitting up a hefty amount of marital property, it can be just as important to evaluate the client’s ability to rebuild wealth, as well as take on future responsibilities such as college tuition, before entering into settlement negotiations.
Most people hate the word “budget” because they find it restrictive. Dave Ramsey, a famous financial guru, says that a budget actually brings freedom because you no longer feel concern or trepidation when spending money. You instead now have a plan and know you are working toward achieving your financial goals. But how do you determine what you spend and what you need? As another adage goes, the past is the best predictor of the future. I advise my clients to review their bank and credit card statements over the past year to determine their average monthly expenditures.
Once we know what the client is roughly spending every month, we can dig to a deeper understanding of exactly what bills must be paid and what is left over, otherwise known as discretionary income. Many people keep their monthly expenses on spreadsheets, like Quicken, and that makes the process easy. Some credit cards, such as American Express, break down the type of expenditures, which makes categorizing spending less challenging. Sometimes clients need professional help to determine what their financial needs will be. A financial advisor can create a series of alternative budgets that we compare to determine various outcomes both in mediation and at trial. In complex cases, a financial expert will testify about the parties’ lifestyle and the client’s future needs and earning capacity. Not every case requires that level of expertise, but one of my favorite mottos is “information is power.”
If you are thinking about divorce, or already involved in divorce litigation, you should seriously consider the role a financial advisor could play in crafting your financial future.