There are few times in our lives when we have to document all of our assets and liabilities, in addition to our income. While many people are aware of their income and expenses, few that come to us for help with divorce regularly track their net worth. You will need to understand your income, your expenses, and your net worth as you proceed in your divorce negotiations. In the next sections, we help you identify all of the pieces of your financial puzzle so you can create the complete picture you need.
Income
Documenting current income for most people is straightforward. If you or your spouse is employed, you will want a recent paystub from each job. This normally includes information about the current pay period as well as year-to-date information. If you or your spouse owns a business, you will need to determine the income generated from the business as well as its value as an asset for the sake of considering property division. We discuss this further in the business information section below.
People’s income fluctuates from year to year as a result of job changes, promotions, commissions, bonuses, or other factors. Because the income you or your spouse currently receives may not be representative of what you have received recently or can expect to receive in the future, you will want to collect state and federal income tax returns for at least the last five years, so that you can document income trends. Another useful item if you wind up in court can be copies of your spouse’s resume. In some cases, a spouse expecting to pay alimony may temporarily take a job with lower pay in an effort to reduce alimony payments. A resume may be useful in documenting such a ploy.
Income tax returns are useful for more than documenting changes in compensation; they also identify other sources of income that may not be evident. For instance, an investment account that your spouse may not have mentioned recently may generate income that is listed on the return.
If your taxes have not been filed for the current year, you will want a copy of all W-2s that will be used for filing. If any cannot be located, attempt to get a copy of the final paystub from the previous year, which would include year-to-date compensation information. While we will discuss more about businesses later, if you or your spouse works as a contractor, there may be several 1099 (miscellaneous income) forms showing income produced in the prior year.
Real Estate
For most married couples, their home is their largest asset. If you own a home, you will need to know its purchase price, its current value, how much equity you have in it (the value minus any loans), and what it costs to own the property. Although an appraisal is the most reliable way to determine current market value of property, you can ask a real estate agent to give you a market evaluation. Most agents are happy to provide this service, in the hope they will be selected to sell your house. If you and your spouse use professionals to determine the value independently, it is unlikely that your valuations will differ greatly.
You will need to document any mortgages, home equity loans, and home equity lines of credit secured by the house. For each loan, you will need the lender’s name, the original amount, the current principal balance, and your monthly payment. This information can be obtained on a recent statement for each loan or by contacting the lender. Many lenders provide this information via their websites. If this is not the case with yours, you can call to get it.
Owning property comes with an obligation to pay property tax. If you have a mortgage, you are also probably required to have homeowner’s insurance. Payments for taxes and insurance are often paid with your mortgage payment into an escrow account managed by your lender. If that’s not the case, you will need to know how much the taxes and insurance are so that you can add them to your budget.
You will need this same information for each property you own. To avoid confusion, separate the information for each property into its own folder, labeled with its address.
Vehicles
Vehicles, including automobiles, recreational vehicles, motorcycles, boats, and trailers can also have significant value. Start by getting a copy of the title for each vehicle. You will also need to know the value of these vehicles. One source of automobile values is the Kelley Blue Book.
Among many services, the site offers vehicle valuations for free. You can also find this book and similar publications at car dealerships and public libraries.
Most vehicle values decrease over time. Classic cars may need to be appraised, although some specialized publications cover this area of collecting. You will want to determine the value of the vehicles at the time of separation. Waiting many months or more could lead to a dispute about what value should be used. If you use a book to determine values, make sure you are using an edition valid for the time you separated. Make sure you photocopy the information you use to justify your valuation.
In distributing your property, the amount of property you brought into the marriage may be significant. Because of this, you will want to document any loan balance as of your marriage date as well as the balance as of the date of separation. If the vehicle was owned outright at the time of marriage, note that.
If a lawyer will help you with your negotiations, you will want to indicate who uses each vehicle, as most couples wish to keep their respective vehicles after the divorce.
Household Items
People often have misconceptions about the value of their household items and appliances. We find that our clients are sometimes surprised at how little individual items are worth (from a fair-market-value point of view, i.e., what they would sell for in a garage sale or on eBay) versus what they cost new. On the other hand, houses are filled with so many items that their cumulative value becomes significant. Further, if one spouse is required to furnish a new household, he or she will usually buy new items, therefore paying what is called replacement costs. In dividing property, a court would consider fair-market value, but if you are negotiating an agreement, you will want to keep in mind what it will cost to replace a refrigerator, dining room set, or other items that may get traded away.
Make an inventory of your household items and appliances. You may want to focus only on items worth a few hundred dollars or more, but you can get as detailed as you like. Make note of items that are of special value to you, either for sentimental reasons or for financial reasons, so that you or your attorney can try to keep or get them. If any of your household items were purchased on payment plans, you will need to determine the balance due and indicate those balances on your list.
Collectibles and Antiques
Items such as stamp and coin collections, jewelry, antique furniture, oriental rugs, fine art, and the like need to be listed and valued. Many collectibles have more value to their owner than to others; but in a divorce, the owner has an incentive to indicate they have less value than they do. You will want to know the real fair-market value of each item but also to consider how dear an item may be to your spouse as you negotiate. If you are using a lawyer to help in negotiations, you will need to alert him or her to things you or your spouse consider especially valuable. To determine the fair-market value of items you may try eBay, looking at completed sales of similar items. For particularly valuable items, you will need to find a professional appraiser specializing in the type of item to be valued.
Bank Accounts and Credit Cards
If you or your spouse uses a computer program to manage your personal finances, do whatever is possible to get a copy of the data files. The files will, at a minimum, have information on your bank accounts. Many people track credit and investment accounts in these programs as well, so you could save yourself a lot of work with these files.
You need to document your bank accounts. You will want to know the financial institution, the type of account, and the balance on the date of separation. Bank statements and cancelled checks for the last twelve months will be helpful to fully document the activity of your account. Reviewing your spending will be critical when you need to develop your budget for life after divorce. As with the bank accounts, you will want the balance at the date of separation and the last year of statements for any credit cards you and your spouse use.
Certificates of deposit are another asset you may have purchased through your bank. These certificates have a denomination, interest rate, and maturity date that you will need to determine.
Student Loans
Student loans are, obviously, just another variety of debt that you need to consider as you build your list of assets and debts. You will want the name of the lender, the amount due, and the required monthly payment. Remember that loans taken out by either spouse are significant to your overall financial picture.
Tax Refunds and Debts
While many of us dread April 15, some people find that tax time offers a nice surprise in the form of a refund. If you are compiling your assets at a time when you or your spouse may be due a refund from the IRS, you need to consider this money as an asset. If your tax return has not yet been filed for the year, the information you are collecting for your divorce negotiations should help in completing the return or having a certified public accountant (CPA) do it for you.
Those working without regular paychecks usually have to file estimated taxes on a quarterly basis. It is not uncommon for people to either fail to make these payments or underpay the amount. This is one way people end up with a tax bill they cannot pay on time. The IRS works out payment plans with a large number of payers. If you or your spouse has a debt to the IRS, you need to determine the amount of the debt as well as any arrangements that have been agreed to regarding periodic payments.
Safe-Deposit Boxes
If you and your spouse have one or more safe-deposit boxes, you should, at a minimum, inventory their contents. The box(es) may contain important financial documents along with valuable collectibles or jewelry. Depending on your situation, you may want to remove the items or get both keys to the box to avoid your spouse removing the contents. If this is not feasible, you can protect yourself by photographing the items and having a bank officer sign your inventory. In an extreme case, your lawyer could get a restraining order from a judge and provide a copy to the bank to prevent you or your spouse opening the box until the order is removed.
Leases, Contracts, and Other Obligations
If you are not a home owner, you and your spouse are likely to have a lease, committing you to pay rent for some time into the future. You will need to locate this document to know the duration of your commitment. Other obligations you will want to consider could include the rent on a storage unit, a contract on a security system, or installment contracts for purchases of household furnishings or appliances.
Investment Accounts
If either you or your spouse has investment accounts, you will want to collect statements showing the name of the financial institution, the name on the accounts, the type of account, and the holdings in the account along with valuation on the date of separation.
Life Insurance
Life insurance is another asset that needs to be considered in divorce. You will need to know the insurance company, the name of the insured, the face amount, the beneficiary, the type of policy (term, whole life, universal), the cash surrender value—if any—as of the date of separation, and the amount of any outstanding loan amounts. Again, you should be able to find all of this information on the most recent statement from the company.
Retirement Plans
Retirement plans can be one of the most complex assets in a divorce because, depending on the type of plan or plans, it may be difficult to determine their current value. While most of the time we advise our clients to trade items or cash of equal value instead of dividing retirement plans, sometimes the plan is a large asset that must be divided in order to create a settlement. This process can be complicated by the fact that many types of plans require a special court order for division called a Qualified Domestic Relations Order (QDRO). We will talk more about this in our on property distribution.
When you are working to find out about the existence and value of your retirement plans, remember that you or your spouse may have retirement benefits, which could be significant, owed to you through prior jobs. An older person who has been married for many years needs to consider the entire work history of his or her spouse to make sure no benefits that might have been accrued in an earlier job are missing. Document all pension, retirement (401k, IRA), and profit-sharing plans and accounts. You will want to know the name of the plan or account, how long it was held, the number of years required for vesting, the earliest possible retirement date, the participant’s birth date, hire date, and the termination date if applicable. This is the type of information that an attorney, actuary, CPA, or other professional can use to help you determine the value of such plans.
Stock Options
Stock options became very popular during the late 1990s boom, particularly among those in the technology industry. Surprisingly, many people did not, and may still not, have a good understanding of their stock options. We had one client come to us who had been so focused on working that he had never taken the time to calculate the value of his options. He was amazed when we told him that they were worth millions. Imagine being the spouse of someone in this situation and not doing the extra legwork required to find out about the stock options. You could unknowingly leave millions of dollars out of your settlement.
The way options are handled varies from company to company. Also, courts vary in how they value options, whether they consider options to be an asset subject to division, and how the options affect any support a spouse might be required to pay. You will most likely need to get advice on your specific situation from a lawyer. To help a lawyer or other professional determine the value of the stock options, you will need to provide the original stock option plan and all amendments. People receive grant agreements whenever given stock options. You will need all of those agreements. There should be a stock options summary statement, showing information about each grant, including whether grants have been exercised or sold or both. Stocks in growing companies sometimes split, which means that the number of shares granted may have increased at some point. This may explain any difference between the shares listed on the grant agreements and in the summary statement.
Marriage and Divorce Agreements
If you and your spouse made an agreement regarding your partnership before (prenuptial) or during (postnuptial) your marriage, you will obviously need those documents in order to understand your options during divorce negotiations. Similarly, since a prior divorce agreement or judgment could affect you or your spouse’s finances due to ongoing support payments, you will need a copy of such a document. If your spouse has the burden of paying support, you will want to identify the duration of the arrangement, including any triggers (such as the former spouse’s remarriage) that might affect the agreement.
Estate-Planning Documents
Although they may not affect you during your divorce negotiations, you will want to locate copies of any estate-planning documents, including wills and trusts. These documents will require modification after your divorce, and you may even wish to modify them during your separation.
Business Information
Valuing businesses is difficult. In most cases, an accountant or business appraiser will be needed to help. The information you will need to determine the value of the business includes the most recent financial statement, the most recent profit-and-loss statement, the annual profit-and-loss statements, tax returns, shares owned (if a corporation), names of officers and shareholders (if applicable), net worth, and formation documents, such as partnership agreements or corporate by-laws and charters. These documents reflect what has been reported by the company.
Unfortunately, it’s not just large businesses that “cook the books.” In an effort to minimize taxes or, if they know a divorce-related valuation is coming, hide or delay income in various ways, some business owners may resort to one or more of the following tactics:
- Delaying depositing checks.
- Increasing expenses by adding nonworking employees to payroll.
- Increasing expenses by paying for personal items or automobiles with business funds.
- Delaying billing clients for projects.
- Delaying signing long-term contracts.
If you suspect any of these activities, then you may need a forensic accountant to go through the details of the business to determine what is really going on. However, because these specialized accounts are expensive, the costs of their services could be greater than what you might gain. You will need to use your judgment, potentially in consultation with an attorney, to determine whether such an investigation is worth the cost.
