It goes without saying that divorce costs money. It’s difficult to predict how much divorce will cost you because costs extend far beyond paying an attorney and can have an impact on everything from your mortgage payment to your utilities and insurance.
However, one thing is certain: Everyone leaves a divorce with their finances in bad shape. Both of your wallets should ideally suffer an equal loss. Here are 12 actions to consider as you and your spouse start dividing assets in light of that.
You might have more assets than you think, even if you don’t consider yourself to be wealthy, and you can’t preserve what you don’t know is there.
Find out how much money you and your spouse have before filing for divorce, advises Holly Davis, a family law attorney and partner with the Austin, Texas, legal firm Kirker Davis.
“This means knowing the balance of everyone’s 401(k), savings plan, credit card bills, 529 accounts, and everything,” Davis claims. You can begin creating an opinion about what you possess and what might potentially be your financial future following a divorce once you know the overall value of everything you own.
If you think your spouse is unreliable, hiding money could be alluring, but you shouldn’t do it, advises Damian Turco, a family law and divorce lawyer who owns and runs Turco Legal PC, a legal practise with four offices in Massachusetts. “Hiding money in anticipation of a divorce is generally a terrible strategic mistake and may result in an uptick in conflict, increased legal costs, and diminished credibility with the judge, who is the most crucial party in your divorce,” he advises.
Turco continues, “But that doesn’t mean you shouldn’t take steps to protect your marital assets and income.” However, he advises that you do so in the open.
Get your own checking and savings accounts right away if you don’t already have them. “Start working with your spouse to separate bank accounts,” advises Turco. You could worry that if all of your assets are in a joint account, one spouse will suddenly withdraw them all. That is a risk that does exist, but the judge won’t be happy about it unless there is a good reason.
According to Turco, you might choose to withdraw half the money and deposit it into a different account if you are concerned that notifying your ex you want separate accounts will leave you with no money. But let your soon-to-be ex know what you did right away. Again, be truthful.
You should maintain a savings account that serves as an emergency fund, legal money, or rainy-day fund that you can use and that cannot be accessed by anybody else, advises Davis, in case you ever need it.
Davis continues, “Even if you’re happily married, you should have an emergency fund.” She also emphasises that you shouldn’t conceal the existence of your new account. But by saving some money, just in case, you’ll be doing yourself a favour.
“It’s always a good feeling to know that you have money you can access if need be, or potential lines of credit, in the event that the majority of your assets are held only in the name of your other spouse,” she claims.
That could entail hiring a divorce lawyer, but it could also entail engaging a mediator instead. That person is your representative as well as your soon-to-be ex. A mediator is there to assist you two in reaching compromises that you can both live with.
You might wish to collaborate with a forensic accounting firm if you are sending solicitors after one another. High-level professionals will then be checking over your and your partner’s portfolios to see whether any money is being kept from you. The majority of couples probably won’t need to do this because it is pricey.
The bigger point is that you might have to make some purchases if you want to save money through a divorce. You really do want to make sure that you settle your financial issues in a way that is fair to both of you since we’re talking about potentially the rest of your life.
Furthermore, if you and your partner decide to end your marriage on your own, without the aid of a professional, you or your partner may unknowingly make a mistake that costs you both money.
A divorce coach or attorney are examples of qualified specialists you should consult with to ensure the paperwork is completed correctly.
However, if you are splitting a retirement or pension plan, you will likely need to file a QDRO with the courts as an illustration of what could go wrong. (A QDRO, short for qualified domestic relations order, requires that a portion of a retirement plan be paid to or assigned to another individual, such as an ex-spouse.) It’s preferable to leave that to a lawyer.
You should probably change your beneficiaries from your spouse to someone else, such as your children, a sibling, or your parents, according to John Mantia, co-founder and director of finance at PARCO, a retirement planning firm in the District of Columbia.
“We have seen it happen many times where clients forget to change their beneficiary forms, they die, and then their family learns that an ex-spouse gets a lot of benefits that otherwise would not have gone to them,” adds Mantia.
Make sure you are not taking the tax-exempt assets while your partner receives the tax-exempt assets, advises Summerhill.
She gives the example of a spouse who earned $875,000 from his 401(k) retirement account, while the wife received the same amount from funds in her bank and brokerage accounts. On the surface, it could appear fair, but it’s not. In this case, if the husband takes the money out, he will have to pay taxes, but the wife won’t, according to Summerhill.
“Make sure you add in the extracurricular activities, such as camp and football gear,” recommends Summerhill if you’re going to be paying child support. “Little and large purchases add up, and you don’t want to return to court after a divorce to try to recover the expenditures. Your protection from the potential additional costs will come from these simple considerations.
An excellent divorce lawyer will, of course, be planning forward on this; hopefully, both parents will agree that a child’s costs aren’t constant. The wants and demands of a child are constantly changing, and you must also consider how you will pay for their college education. Therefore, you shouldn’t undervalue child support.
It makes sense that you’d want to keep your house if you’re divorcing because many individuals become emotionally attached to them. Better still if your spouse doesn’t want the house. or so you might assume.
You might “win” the house but ultimately feel defeated. “The cost of the upkeep and yearly mortgage payments may not be as beneficial as getting a brokerage asset in the divorce settlement,” Summerhill claims.
According to her, downsizing to a less expensive home while remaining in the same school district would be the wiser course of action.
To put it another way, if you can avoid it, don’t engage divorce lawyers and have them negotiate everything before going to court. You’ll both lose everything.
Even divorce lawyers frequently give this advice to avoid.
According to Russell Frank, a marital and family law attorney based in Orlando, “generally, the mediation process will be much less expensive than litigating a case at trial, and it will give the parties a lot more leeway for creativity in resolving the unique issues in their cases than the judge would have at trial.” In addition, he is a licenced family mediator by the Florida Supreme Court.
“Be open to sharing all information and documents, if you expect the other side to do the same,” advises Hefner.
Keep it factual. Even though divorce is an emotional process, try not to let it affect how you and your spouse decide to end things.
Hefner advises using fact-based arguments rather than ones that are motivated by emotion if you disagree with a point. Instead of making comments about the other person’s incapacity to handle spending more time with the kids, for instance, discuss what schedule might work best for your children and keep your attention on their needs.
Think about working with a divorce coach. According to Hefner, a divorce coach may assist you in processing what is happening and provide guidance on how to react strategically as opposed to lash out or shut down.
Accept technology. Use applications to communicate with your children more effectively about things like calendars and expenses, advises Hefner.
Maintain your attention. “Be clear on what your goals are and let go of the rest,” Hefner advises. Your lawyer can assist you in identifying your main objectives and performing a cost-benefit analysis for more minor difficulties. For instance, is it worthwhile to argue about the modest HSA account? Perhaps, but perhaps not.