Most divorce negotiations focus on the balance sheet: who gets the house, how the retirement accounts are split, what the equalization payment is. But a fair division of assets doesn't guarantee a workable life afterward. The real test is cash flow, meaning whether each household can pay its bills month after month, year after year.
Before you sign, make sure you can answer these seven questions.
1. What will I actually take home each month?
Start with net income after taxes, then add or subtract support. That's the number your budget has to work with. Gross income and assets on paper don't pay bills.
2. What will my new household cost?
Two households cost more than one. Build a realistic budget for your post-divorce life, including housing, utilities, insurance, transportation, child-related costs and the expenses your spouse used to cover.
3. Can I really afford the house?
The mortgage is only part of it. Property taxes, insurance, maintenance and repairs add up. Some people keep the house and find themselves "house rich, cash poor." Run the numbers before you decide.
4. What happens when support changes or ends?
If you receive spousal support, what will your budget look like after it ends? If you pay it, when will your cash flow improve? Child support changes as children grow up, too. Look at the years ahead, not just the first one.
5. How will my taxes change?
Filing status, who claims the children and which tax benefits each parent qualifies for can all change after divorce. Your tax bill next year may look very different from this year's.
6. Will I have money I can reach?
A settlement heavy in retirement accounts may look generous but leave you short of cash for a deposit, a car or an emergency. Withdrawing early can mean taxes and penalties. Make sure you'll have enough liquid savings to get through the transition.
7. Who pays for health insurance and the children's big expenses?
Health coverage often changes after divorce, and it can be expensive. Decide in advance how you'll share medical costs, childcare, activities and future education.
Look years ahead, not just at signing
The best agreements are tested against the future. VennBoard creates year-by-year after-tax cash-flow projections for each spouse, so both people can see whether an agreement still works in year three, five and ten.
For financial professionals: bring us one closed matter, and we'll show you projections built from verified data. Start my pilot
This article is general information, not legal, tax or financial advice. Talk to your attorney and a qualified financial professional about your situation.