Can I Afford to Get Divorced? Thoughts from a Wealth Manager: Guest Post
Guest Post: By Faisal Karmali
“Can I afford to get divorced?” It is a question I hear often as a wealth advisor and a certified divorce financial analyst. Going through a divorce can be emotionally devastating, but it can also cause lasting financial damage. Part of my job is to help clients who are considering or pursuing divorce determine how to financially sustain their lifestyles.
Determining whether you can afford to get a divorce requires a thorough assessment of your financial situation. I would never recommend staying in a bad situation for longer than necessary; however, whenever possible, it is important to take the time you need to ensure you are financially prepared before making the decision to divorce or separate.
If you are asking yourself if you can afford to get divorced, here are four steps I would suggest you take:
1. Evaluate your Income and Expenses
Income will be one of your most pressing needs during and after your divorce. Do you have enough cash flow to cover your day-to-day living expenses? This income can come from sources like your job, your savings, or your investments.
How will divorce impact this income? Be cautious when factoring your divorce settlement into your cash flow. If your settlement consists of your house, car, or other physical assets, it will be hard to use it to pay the bills unless you are willing and able to sell it immediately.
Consider your monthly expenses - realistically add up your financial obligations such as housing costs, utilities, transportation, food, healthcare, childcare, and insurance. Account for any potential adjustments that may arise from your divorce, such as changes in living arrangements or child-related expenses. Don’t forget to factor in any legal fees associated with your divorce!
Then weigh your income against your expenses. Do you have enough to support your lifestyle? This exercise will help you understand your financial needs and make informed decisions during negotiations or court proceedings.
2. Assess your Assets and Liabilities
Take the first steps towards understanding the division of assets and debts that may occur during your divorce.
Start by going through your financial documents and make copies of your records to keep in a secure place. These documents can include:
- Statements for bank and investment accounts;
- Stock certificates;
- Tax returns;
- Pay stubs;
- Property records;
- Loan agreements (ie. mortgage statements, car loans, etc.);
- Receipts for any major purchases (ie. furniture, vehicles, etc.);
- Credit card statements;
- Recurring bills; or
- Business records - if you own a business, collect accounting information, bank statements, financial statements, general ledgers, and tax filings.
Include anything that you may need to refer to later to save yourself time and money during the discovery process. By going through this exercise before parting ways with your spouse, you can avoid the predicament of hastily gathering as much paperwork as possible as you walk out the door.
After you have gathered your documents, take an inventory of your assets - such as properties, vehicles, savings, investments, and personal belongings. Start to think about the physical assets that you may want in the divorce.
Also consider any debts that you may be responsible for - such as mortgages, car loans, or credit card debt. As you go through the divorce process, be sure to monitor your credit report regularly to ensure there are no unexpected or unauthorized charges. Think about closing joint credit accounts or requesting that your spouse’s name be removed from shared debts to protect your credit score.
Taking stock of both your assets and your liabilities will help you understand your full financial picture and will assist in the division of property during the divorce process.
3. Plan for Your Future
Divorce is your current reality, but it should not define your entire financial future. Look beyond the immediate financial impact of divorce and consider your long-term financial well-being. What adjustments might you need to make to secure your financial stability in the future?
Think about your long-term goals. They may include a career change, your children’s education, or your retirement. How might they be affected by your divorce? Understanding your financial objectives will help you negotiate a fair settlement and plan for your future.
When it comes to estate planning, remember to review and update your beneficiary designations on life insurance policies, investment accounts, pensions, and other assets. Also look at updating your will, power of attorney, personal directive, and any other estate planning documents to reflect your new circumstances. If you decide to replace your ex-spouse with your children as a beneficiary, remember that they cannot hold the accounts until they are legally adults. In the meantime, you will need to designate a trustee or custodian.
4. Consult the professionals
The good news is you do not have to do it alone. Before you make any decisions, get advice from a family lawyer and a wealth advisor. They can provide guidance on asset division, tax implications, spousal support, child support, and other financial aspects of divorce that is tailored to you and your specific situation.
Navigating the financial landscape during a separation or divorce can be a daunting challenge. However, it's essential to remember that while the process may feel overwhelming, you are not alone. By evaluating your income and expenses, assessing your assets and liabilities, planning for your future, and seeking professional guidance, you are actively setting the groundwork for your financial independence post-divorce.
ABOUT THE AUTHOR:
Faisal Karmali is a wealth advisor with the Popowich Karmali Advisory Group, media personality and host of More Than Money Radio, and business and market expert for QR Calgary and CTV. He has dedicated his career to helping people improve their financial security as they prepare for and live in retirement.
The team of experienced family lawyers at Crossroads Law stands ready to guide you through every step of your family law journey - whether it involves mediation, collaborative divorce, arbitration, or court litigation. If you're contemplating separation or divorce, contact us today to schedule your complimentary consultation. Let us help you secure a financially stable and prosperous future for you and your family.