In this episode: Before you file, hire an attorney or sit down to negotiate, take inventory. Jon Peyton explains the three documents that give you and your attorney a clear picture of the household: a balance sheet, a cash flow statement and a benefits statement. He also shows what each can reveal that you might otherwise miss.
Key insights
- Start with three documents: a balance sheet (what you own and owe), a cash flow statement (money in and out) and a benefits statement (the perks you may lose).
- Pay stubs show more than income. Gross pay, deductions and where net pay is deposited can reveal bonuses, changed withholding or accounts you didn’t know about.
- A detailed budget explains debt or missing savings, and shows what two separate households will cost.
- Benefits like employer health insurance, credit card points and tax-loss carryforwards have real dollar value.
- Knowing the full picture helps you weigh options like transitional alimony versus a larger share of assets.
Episode timeline
- 0:00 Introduction
- 0:38 Where to start: take inventory
- 2:38 The three documents you need
- 2:40 Document one: assets and liabilities
- 3:20 Document two: the cash flow statement
- 4:27 What pay stubs reveal
- 5:56 Spotting bonuses and unreported income
- 7:24 Deductions and where the money goes
- 7:58 Watch for changes in tax withholding
- 9:54 Net pay deposited into other accounts
- 10:41 Building a full household budget
- 12:10 When the numbers don’t add up
- 14:05 The cost of running two households
- 15:20 Document three: the benefits statement
- 18:17 Going back to work: the true cost
- 19:18 Credit card points and airline miles
- 20:33 Tax-loss carryforwards
- 22:22 Putting the full picture together
- 23:57 One step at a time
The episode in brief
Start with inventory. Whether you’re hiring an attorney or filing pro se, you need a clear, unemotional view of the household: what you own, what comes in and what goes out. The better you understand it, the easier it is to spot surprises and plan your approach. Jon breaks it into three documents.
Document one: assets and liabilities. List everything the household owns and owes, including household, retirement and non-retirement assets, cash balances and debts. This shows what exists and what needs to be divided.
Document two: the cash flow statement. This tracks money in and money out. Start with pay stubs, which show three things: gross pay, deductions and net pay, plus which account the net pay goes into.
Gross pay shows the trend. Compare pay stubs from different times of year. A stub from early in the year may not show a bonus paid later, while a late-year stub with year-to-date totals usually will.
Deductions show where the money goes. Look at 401(k), HSA and dependent care contributions. Pay special attention to tax withholding. Jon describes a spouse who, right after divorce is raised, cuts retirement contributions and raises withholding, then produces pay stubs a few cycles later. Take-home pay looks unchanged, but a large tax refund shows up the following year.
Net pay can reveal hidden accounts. If a pay stub shows deposits split across several accounts and only one is the family account, you can request records for the others.
Build a full budget. Groceries, phones, car payments, gas, student loans, housing and children’s costs all go in. If the family brings in $5,000 and spends $6,000, that explains household debt, which may then be treated as shared. If the budget shows $1,000 a month left over but the bank balance isn’t growing, look closely at the purchases.
Two households cost more than one. If the joint household runs $5,000 a month and each spouse would need $3,500 alone, the total becomes $7,000. That gap can support a request for transitional alimony for a lower-earning spouse, or an argument for taking more assets instead of alimony. Both have tradeoffs.
Document three: the benefits statement. These are soft-dollar benefits you may give up. Health insurance is a big one. A spouse covered on the other’s employer plan can usually continue coverage through COBRA, often for up to three years after a divorce, but COBRA usually costs much more. Compare it with your own employer’s plan.
Going back to work has hidden costs. A spouse returning to work now pays taxes, Social Security, health insurance and retirement contributions from their own paycheck. Those costs determine how much you need to earn to support your lifestyle.
Points and miles have value. Depending on the program, a credit card point or airline mile may be worth one to five cents. Five hundred thousand points could be worth $5,000 to $25,000. Don’t leave them on the table.
Capital loss carryforwards. Past investment losses on the tax return can offset future gains. If you receive part of a brokerage account, a share of those losses could reduce the taxes you owe when you sell.
Put it together. With a balance sheet, cash flow statement and benefits statement, you and your attorney can see today’s lifestyle, what each of you will need, and where the obstacles are.
One step at a time. Understand what’s in front of you, and the next step becomes clearer.
Key action items
- Build a balance sheet. List every asset and debt, including retirement and non-retirement accounts, cash and loans.
- Collect pay stubs from several points in the year for both spouses to see bonuses, deductions, withholding and deposit accounts.
- Create a detailed budget, then estimate what a separate household would cost you.
- List the benefits you might lose, including health insurance, points and miles, memberships and tax-loss carryforwards, and estimate their value.
- Share all three documents with your attorney and any financial professional working with you.
Listen next: Episode 5: Divorce – The Numbers Game
This episode is educational and isn’t legal, tax or financial advice. Speak with your own attorney and advisers about your situation.