By Linda Descano, CFA® President & CEO, Women & Co.
Every divorce has unique circumstances that can directly influence the outcome, including who earns more, who gets custody of the children, or if one spouse has made a considerable financial contribution to the other's earning potential. If you reviewed divorce laws state by state, you'd find that most states require assets to be split equitably, not equally. The unfortunate reality is that many divorced women could end up on the wrong side of what they perceive to be fair. But, there are steps you can take to help be prepared for the negotiation.
Here are 10 things you can do to help prepare for your divorce settlement negotiations:
1. Get your paperwork in order. Since assets are generally divided on a percentage basis, the more specifically you can identify your assets, the more fairly the assets are likely to be awarded. Be prepared to present these documents:
• Tax records (pre- and post-marriage)
• Savings and checking account records
• Brokerage account records
• Securities acquisition records
• Employee retirement plan records for you and your spouse
• Insurance policies
• Real estate/mortgage/lease documents
• Living will/power of attorney/organ donor cards
• Trust agreements
• Business and personal loan and credit card records
• Birth records, marriage certificates, prenuptial agreements
• Records of law suits
• Records of gifts from third parties and spouse
2. Establish your own credit card, checking and savings accounts under your own name. Make sure your paycheck, if automatically deposited, goes to your own checking account. And, make sure you alert your joint credit card vendors to the situation so they can put a stop on any future charges by your spouse.
3. Consider establishing a joint or escrow account for interim family expenses. It's important that you try to maintain your lifestyle during divorce proceedings. Any reduction in your standard of living during this period may be grounds for reducing the financial support you receive in the future. You'll need an interim system for paying bills during the period between separation and divorce, before any final settlement is determined, and until all money issues are resolved.
4. Get professional help. Legal and financial help are invaluable, particularly when dividing property. Not consulting a professional may lead to a decision that could irreparably jeopardize your rights, your property settlement and your future. If the expense is keeping you from consulting the appropriate advisors, keep in mind that payment of any legal, accounting and actuarial fees you incur during divorce proceedings may be negotiated as part of your settlement.
5. Establish child support. If you have a family, one of your top priorities during a divorce could be the physical and emotional well being of your children. A judge typically determines the financial resources that must be made available to the custodial parent according to the laws in your state.
6. Resolve how college tuition will be paid. Both parents' contributions to college expenses will need to be addressed in the divorce settlement. While it may be tempting to use retirement funds as a source of education funding, a word of caution, these assets can take a very long time to replace. College costs can be met through a patchwork arrangement of low-interest loans, financial aid, and part time student jobs.
7. Negotiate the best health insurance coverage for you and your children. If one parent has access to health insurance at a reasonable coast, most states have laws permitting or requiring the court to order that parent to keep the children on the plan. Children are typically covered until they reach age 18. If health insurance becomes an expense, it should be factored into the child support award.
8. Calculate the long-term costs of keeping the house. Today, you may want the house. It makes sense if you're hoping to maintain custody of your children and preserve some continuity in their lives. It can also be a very valuable, though illiquid, asset. But, a home can be very expensive to maintain in the long term. A mortgage, taxes, utilities, maintenance and general day-to-day upkeep add up. Once the marriage is dissolved, will you still be able to maintain the house? Make sure you run the numbers ahead of time, before you stake your claim and fight to keep your home.
9. Negotiate for retirement benefits. Divorce negotiations for benefits from 401(k) plans, Individual Retirement Accounts and other retirement plans should be handled with great care. Consult a qualified actuary to appraise the value of the retirement plan assets to help ensure an equitable division or replacement value of these vehicles.
About the Author:
Linda Descano is President and CEO of Women & Co., a service of Citi that brings women relevant financial content and thoughtful commentary to get them thinking and talking about money. Prior to joining Women & Co. in 2003, she served as a Director and Portfolio Manager with the Citi Private Portfolio Group from 1999 to 2002 and Senior Vice President and Director of Environmental Affairs for the Citi predecessor company, Salomon Inc. which she joined in 1994. She received a 2011 Luminary Award from Womensphere® and the Urban Zen Foundation for the work she does in actively changing the lives of women and was the New York recipient of the 2009 Corporate w2wlink Ascendancy Award.