Simple Tools: The Financial Affidavit

Why, When and How to use your Finanical Affidavit.

The most important tool in your divorce is frequently the most over-looked, and avoided. Even its name is off-putting; but it is the key to understanding all of the other issues which arise. It is called (drumroll, please), “The Financial Affidavit” (yawn).

Frankly, most people should keep a current finanical affidavit available whether or not they are contemplating divorce. A financial affidavit is just a form that shows you how much you have in income, expenses, liabilities and assets. While these may sound like no-brainer questions, most people cannot accuratelty answer these questions off the top of their heads. Sometimes one member of a family knows all the answers and the other just relies on that person. Sometimes neither party can answer them. Rarely, but sometimes, both parties are very aware of all of the finances.

It is surprisingto me how often a client – or an opposing party – resists using the simple form available on the Judicial Branch websites of most states. It can be a little complicated the first time you look at it (for example, in Connecticut, you have to divide every monthly amount by 4.3 weeks). But the value of this tool far outweighs its inconvenience.

Here is a link to the CT “Long Form” to give you a sense of the questions it poses. https://jud.ct.gov/webforms/forms/FM006-LONG.pdf

WHY: Look, I hate to be the one to tell you, but divorces frequently come down to a set of financial decisions. After the child-rearing and emotional issues have been resolved, it is similar to a business transaction. People want to know: How much child support will I have to pay or receive? How much alimony? What portion of the debts and assets will be assigned to me? The answer to these basic and all-important questions is not a secret magical formula. It is a direct function of the information contained in your own personal finanical picture.

Simply put, better informed is better prepared. Building your own financial affidavit will likely compel you to ask questions and make some calculations that you never thought to ask. Questions like how much money do we spend on restaurants each week? How much equity is in our house right now? Do we have retirment accounts, and how much are they worth? Not only is this good information for the court. It is good information for you. If you are trying to imagine what a post-divorce future will look like, knowing your finanical picture can help define those scenarios. Picture knowing how much money you would have if you sold your house; how much disposable income you have right now; and what you are paying for health insurance each month. These are the questions people pay attorneys and financial consultants to help them figure out. And, ironicaly, you are the only one who can get them the information which unlocks these secrets!

WHEN: Early and often. If you bring a completed financial affidavit with you to your first meeting with your divorce attorney or mediator, you will save yourself time and money getting to the heart of what the case will entail. In most jurisdictions you will need to disclose the information within the first few weeks of any divorce action, and so will your spouse. So, why wait? Get the information to your attorney as soon as you can. The earlier your lawyer or mediator is informed about your case, the more accurate they can be in looking for an appropriate resolution.

FAQ: Why should I divulge my information to my spouse? Aren’t we going to be fighting about this? Shouldn’t I keep it a secret?

Answer: The court will compel you to share all information, anyway. Any knowledge which is not exchanged voluntarily is likely to come out on the witness stand – either in depostion or at trial – anyway. But, of course, voluntarily costs less time and money.

HOW: Despite the mysterious-sounding 4.3 weeks rule and all of the detail (weekly grooming costs!?), these forms are straightforward once you understand them. And, as with so many things, the internet has made the work easier than ever. Start by finding your most recent paystubs, tax returns, mortgage loan statement, and credit/debit card statements (these can be downloaded from your banking institution). These 4 sets of documents will provide you 80% of your necessary information. When you are ready to get started, set aside one hour of time. Supply yourself with one scratch copy of the form to work on and a blank copy to fill-in later, a sharpened pencil & eraser, a calculator, a note pad for jotting questions or doing calculations, and a tall glass of your favorite beverage. Preferably non-alcoholic, to cut down on mistakes. Then, start filling in the blanks. Any questions you still can’t answer, just make a note and move on.

Pro tip: On your first time through the form, use the figures as you find them. If your mortgage is a monthly amount; write it that way. If you spent a total of $5,000 on vacations last year; write it that way. Get your figures all in one place; convert it to weekly later.

Once your first draft is complete you have a choice – you can stop there and give the draft and your supporting documentation to a professional to complete for you. You have already saved yourself hours of professional fees by making a solid first draft. Or, you can go for it and convert the figures to weekly on your own. It is not so hard. Any monthly amount gets divided by 4.3. Any annual amount gets divided by 52. So, if you spent $5000 on vacations last year, you would put $96 as your weekly vacation budget. If your monthly mortgage loan payment is $2000, that’s $465 per week.

And now – here’s the icing on the cake… you have created your own financial snap shot! If you are not getting a divorce, you have a realistic budget to use when you plan for future events. If you are going through a divorce you now know what each of you should have when the smoke clears. Even if its not much, at least you know what it is!

What We Love: Divorce is an opportunity for growth. Taking charge of your life begins with understanding your finances and leads to your own empowerment.

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Perspective

ImagePerspective. I recently met with a group of marital and family therapists.  Perspective is their job, right?  They  listen to a woman wonder whether she should divorce a man who loves her unconditionally but doesn’t communicate well, she leaves the therapist’s  office and a man walks in whose wife is physically and verbally abusive, but he would never dream of using the “D” word.

                  Here are some guidelines I have noticed.  The toughest decision is the very first one: in or out?  Do I want to stay in this marriage, and work through whatever this is, or have I given everything there is to give?    I think this should be the factors that they have to balance. Not – how much will it cost? How long will it take? Will it be painful?  The answers are all worst case scenario – it will take longer than you want;  it will cost more than you can afford, and – yes – it will be painful.

                  So what? All of those are the same answers one could give about having children: costs too much, takes too long, definitely painful (whether you are the mother or the father.)  But those are not the deciding factors on whether or not to have children.  Or we would have a much more sparsely populated planet.

                  Frequently, there is one person who wants a divorce and one person who is completely blind-sided by it.  In general, the person who is blind-sided is the one who was getting the good deal all along.  The person who wants a divorce has probably grappled and struggled with the decision for months, if not years, before finally deciding that the problems are insurmountable.

                  Obviously, this is not always true.  Plenty of selfish louts decide for reasons of pure self-interest to get out of the marriage.  And plenty of devoted hard-working spouses want to stay together anyway.

                  The threats usually start when someone is trying to take away the good deal.

                  The goal of a good divorce is to get through it as quickly, painlessly, and inexpensively as possible, while maintaining one’s ability to move forward in life.  Too often, we see people who are afraid of “losing everything” in the divorce, instead spending everything in the divorce.  When it’s all over, what is the difference?  They would rather see their lawyer make $25k or $30k on a divorce than get one penny less than their fair share.  By the time the smoke clears, the lawyers have each picked up $30,000 and the nest egg is gone.  No wonder people are afraid to get divorced!

                  Ironically, the people who have the best divorces are the ones who are confident in their ability to survive it and move on.  Whereas, the ones who are afraid that it will devastate them, are frequently the ones who make things worse by hanging on to their fear and anger.  Please help your clients visualize the outcome – a new smaller, cleaner condo; some money in the bank; being poised and gracious at the kid’s graduations, recitals & weddings, etc.

                  People who think they will fight to the death over any given matter, suddenly lose their will to fight when all of the money is gone, and by then, of course, it is too late.  And not just for financial reasons.  It is harder to respect someone who has dragged you over the coals to get at a family heirloom, or keep you from seeing your children, or even your pet.

Divorces can last years, and the longer they last the more damage they do, and the more money they cost.

One major reason, is that the legal track cannot really get ahead of the emotional track.  Until both parties are tired enough of the fighting, it is possible to prolong the process for years.  I have seen people have custody battles over a dog, an engagement ring, and – no lie – a weed whacker.  If you feel the need to fight, you can.

What We Love:   Perspective.  It is never too late to get some.