Do the Math: Important Financial Information to Gather Before You Decide to Divorce

Divorce rarely happens overnight, but people are seldom prepared. Even if you consider the emotional and social aspects of divorce, you may not give much thought to the financial fall-out. Yes, it’s pragmatic, but taking care of your fiscal well-being is just as important as sorting through the emotional flotsam. That’s why experts recommend giving thought to finances before you file for divorce.

Where to start? Leslie Thompson, certified divorce financial analyst, recommends gathering four important pieces of information to inform decisions impacting your finances now and into the future.

  1. Tax returns.

Gather your tax returns from the most recent three years as well as the supporting documents used to prepare those returns, including W-2, 1099 and K-1 forms. Make copies of these electronic or paper documents to provide to your attorney. Don’t have access to your returns? No problem. Contact your accountant or request a copy from the IRS by using Form 4508.

  1. Income/Expense Analysis

This sounds more complicated than it is. An income/expense analysis accounts for exactly what you spend each month and on an annual basis versus your income. Don’t guess or make assumptions. Thompson recommends reviewing three years’ worth of bank and credit card statements to verify spending. Once you divorce, some expenses may drop away and others may increase or be taken on. “It’s important for you to determine no only historical spending,” she says, “but also likely spending in the future.”

If you use online banking services, chances are your bank already has software that can tally up everything spent from those accounts. Other apps, such or, can consolidate expenses and income from multiple accounts to provide a comprehensive financial snapshot, including what you owe on all credit cards, mortgages, and other loans. Use this information to create your post-divorce budget.

  1. Net-worth statement

Your net-worth statement accounts for all your assets and long-term liabilities. Gather up statements from your investments, checking, and savings accounts, as well as retirement accounts, annuities, long-term health insurance, real estate holdings, and other viable assets. (Many of these will be listed on your income tax return.) You will also want to gather statements from all outstanding debt, including mortgage(s), credit cards, car loans, student loans, etc. If debt was jointly initiated, it may be split between you and your ex during your divorce negotiations. Typically, however, any debt you held coming into the marriage will be your responsibility post-divorce.

  1. Credit Report

One of the best ways to make sure you’ve accounted for all your debt liabilities is to run a credit report. (They are free three times a year!)  This report will include accounts that are owned by both you and your spouse.

While reviewing your credit history, take the opportunity to confirm that the information is correct and correct any errors. Reporting errors happen frequently and can impact your credit score (which, in turn, may impact your ability to get a loan, or low interest rates.) You can also use this report to create a list of joint accounts that should be closed. While you’re at it, check your credit rating and take steps to build or increase it, if necessary. (A “good” or “excellent” credit rating provides you with lower interest rates and better terms.)

Reviewing your financial circumstances can be daunting, but it is a smart step to take to gain a realistic perspective of any challenges that may lie ahead. For example, you may decide to go back to school to build skills that will provide a better income. You may also find that you need to save more for retirement, or defray high-interest debt. Regardless of what you decide, having a clear picture of your financial prospects will provide you with greater confidence to make the decision that is best for your future.