Getting Organized “Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.”
—Albert Einstein
Excerpted from “The Financially Smart Divorce” by J.A. Licciardello
My friend Barbara is a pack rat. Unlike me, who needs the spice rack alphabetized and gets excited around label makers, she is comfortable with vast amounts of clutter. She calls it casual living, I call it crazy.
Regardless of whether people are neat freaks or clutter freaks,or something in between, most live their financial lives in a state of semi-organization. The bills get paid and the credit cards managed, but many important activities fall out of their consciousness until they are completely forgotten.
I hate to even to say this, but one of the good things about divorce is that you are forced to get up close and personal with all aspects of your finances. Early on in the process you must account for all of your assets, your debt, and your expenses. The court requires it.
Gather Your Records
One of the first actions you will take once the petition for divorce is filed is to provide a full and truthful accounting of your personal finances to your attorney and the court. You spouse will file one as well.
In the workbook section of this book you will see a Getting Organized Document Checklist to help you gather this information. It is broken down into a number of categories.
In each of these categories gather recent paper statements or go online and print off the information. You will consolidate all of this data into a summary to be forwarded to the court on their official forms, and to your attorney or mediator.
Cash
This is the money you use to pay the bills. Begin your data-gathering process by collecting statements for your bank checking and savings accounts. If you have a brokerage relationship you may also have cash there to be accounted for.
Investment and Retirement Accounts
Individual retirement accounts (IRAs) and certain insurance products like variable annuities are in this category, as are company retirement plans such as 401(k)s. You should receive quarterly mailings showing the value and portfolio details.
Corporate Compensation Plans
Employer plans such as stock purchase, stock option, and deferred com- pensation programs should also be accounted for. Lastly, don’t forget about pension plans. You may have more difficulty getting this information as you probably don’t receive a monthly statement. But they are required to report at least once a year on the accrued benefits.
Debt
Get a copy of your mortgage statement, home equity loans, car loans, and credit cards. Make a note of any loans on your 401(k) accounts as well.
Life Insurance Contracts
These are the core protections your family relies on should an income provider die unexpectedly. Some insurance contracts have cash value as well. Find the contract you were given when you opened up the policy or ask your insurance advisor to get you a copy from the insurance company.
Make a List of Your Personal Property
You should take an inventory of all of your personal property. Make note of those items that were owned before the marriage or received as gifts or inheritance. There will be a determination made during your divorce as to which of your belongings are subject to split as part of your financial settlement. This subject is talked about more in the next chapter on marital versus separate property.
Get a Copy Your Will and/or Trust Documents
The court will not need a copy of your will and other estate documents, but you will want to review them and assess whether changes should be made.
Review Beneficiary Designations
It is important to note that many of your assets are not distributed based on your will when you die. Jointly held assets such as a home and checking accounts, insurance products, and retirement accounts all have named beneficiaries and are passed on to your heirs outside of your will.
You will want to make a note of which of these assets name your spouse as beneficiary. It is likely that you will want to remove him or her after you are divorced, and perhaps sooner. Consult with your attorney before making changes.
Estimate Your Expenses and Income
This one is often an eye-opener. Most people don’t know where their money goes or only have a fuzzy sense of their expenses. It is easy to remember the mortgage payment and the health club dues while forgetting the three- dollar-a-day Starbucks habit. It all counts.
A simple way to approach this most tedious of financial tasks is to go online and download a year’s worth of activity from your bank and credit card companies into a spreadsheet. Most firms provide you a way of doing this. Sort it by the establishment name and you have an initial understanding of where your money goes.
One thing not accounted for is cash expenditures, but you will see ATM fees all bunched together, giving you an idea of how much of your spending is unaccounted for. Saving a month’s worth of receipts will help you identify what you are doing with all that cash.
Separate and Modify Expenses Based on Your Future Life
Separate your expenses into categories as defined by the financial dis- closure forms your state requires. You will need to modify some of these expenses based on what you expect them to be as a single person. Your costs for housing may change, as will perhaps health care expenses and home maintenance.
Getting this as accurate as possible is really important. In order for you financial settlement to be fair it needs to be based on reality. Missing an essential expense or underestimating by a wide margin what it will cost to support your lifestyle will make negotiations flawed from the outset. It is also problematic to overstate your expenses as your financial affidavit is an official court document and exposes you to potential penalties if it is discovered to be intentionally misleading.
Calculating Income
You need to account for all sources of income: from employment, taxable investments, alimony and child support from a previous marriage, Social Security…all of it.
You will also need to deconstruct your paycheck, and separate out the deductions and taxes that reduce your gross income and result in your take- home pay. Included may be deductions for health care premiums and other insurance, Social Security and Medicare, 401(k), and other savings plans. So there is a little math required to understand what your income really is and to get all the data required on the mandatory court disclosure forms. But you should find it an enlightening exercise.