After years of working with those going through divorce, we have found individuals with two factors really thrive during divorce. Those who have (1) knowledge of the relevant facts and (2) realistic expectations are the most ‘successful’ in their divorce. Without accurate accounting of your finances, you may find that you cannot afford your life, or you could jeopardize the retirement that you have worked so hard for. Conversely, you may find you have more than enough in assets to maintain your lifestyle, and you are secure financially. With higher-than-realistic expectations you may spend thousands of dollars (or hundreds of thousands) only to find a fair division is 50/50 (or 53/47 but not the 80% you wanted). For those going through a “gray divorce” or spouses who have worked at home, the financial ramifications can be even more significant for either mistake.
Hurt feelings and fear often combat rational thought – which we totally understand – we were the same way. Divorce is scary! With that in mind, we have created 7 tips to help those in divorce walk away with your financial future intact after you go your separate ways.
Budget your Post-Divorce Lifestyle.
Living separately can be scarier than living together – even if you were miserable! To ease the fear, remember knowledge is power. It is imperative to know your monthly income and expenses. This is particularly important if one spouse has been paying the bills and managing the household finances alone.
Figure out your immediate needs and go from there. At Divorce Strategies Group we walk couples through their post-divorce budget early in the divorce process. It is important that clients know realistically what they can spend each month following the divorce. This sets them up for a secure financial future and gives them peace of mind. It can also help you negotiate from a position of power, not fear.
Manage Costs During the Divorce
A typical litigated Texas divorce ranges between roughly $20,000 to $40,000 or more. That is no small chunk of change to most couples. We have been witness to divorces costing $60,000, $80,000 and more (reference unrealistic expectations and lack of knowledge above).
One way to mitigate the financial fallout of divorce is to choose early mediation over litigation. Mediation is a process in which a mediator helps divorcing couples reach an amicable settlement. The mediator facilitates communication between the parties to promote settlement and understanding between them. Mediation addresses child custody, child support, visitation, spousal support, and property division. The mediator does not act as a judge, attorney, or financial advisor, but assists the spouses in reaching a voluntary agreement. At Divorce Strategies Group our Mediation Process involves a team of experts that will work with you and your spouse to negotiate a divorce settlement that won’t break the bank.
The issue many attorneys, rightly so, have with mediation is it is done without guidance of someone who understands the law or someone who understands how finances work relevant to divorce. These are both valid concerns. We have seen couples negotiate a “do it yourself” divorce only to find they owe thousands later due to mistakes or someone lost out of hundreds of thousands because the agreements were not able to be legally completed (such a restricted stock plan) or the property documentation (such as a pension plan) was not completely correctly, thus the agreement is not enforceable.
To make sure you do it right, we include a Family Law Mediator Attorney with a Divorce Financial Expert to provide the right guidance to you the first time. Visit Divorce Strategies Group for more information on our process.
If you have joint debt with your soon-to-be ex-spouse, it is best to pay it off before finalizing the divorce.
Shared debts remain both party’s obligation in the eyes of a lender, even if the divorce settlement says only one spouse is responsible for paying it back. If the responsible spouse fails to make the payments, any defaults will show up on the other spouse’s credit history.
If the debt cannot be paid off pre-divorce and becomes only one spouse’s responsibility, the other should continue to have access to the account’s history to make sure it is being paid as agreed. Better yet, have an attorney create an enforcement action in which you can take over the property or some other property if you are not able to be removed from the debt and your spouse, who was assigned the debt, fails to pay. An attorney can help you make payment of the debt in your name contractual or binding in some other format. Debt in divorce can be tricky It is wise to seek legal and financial guidance if you are dealing with large amount of debt or a significant debt (like a home mortgage).
Kids are Expensive
Kids can cost a lot, especially when you have not budgeted their future needs into the equation. Be sure to consider things like cars, car insurance, private school tuition, day care costs, summer camps, extracurricular activities, and even smaller things like school lunch accounts and back to school shopping. These costs add up over time.
If you have children close to graduating from high school, it is important to be very clear about what each parent is willing to cover in college costs or any other expenses. Another discussion to have is who will cover health care costs for your children after they graduate high school. Who will the insurance fall under, who will pay for it, and how will out-of-pocket costs be covered from the time your child graduates from high school until they are fully on their own as a working adult? Family courts do not cover this time period, but parents sure do, and contractual agreements can be made between the parties regarding this no man’s land of time for older kids needs.
Divorce during Retirement
Gray divorce is defined as divorcing couples who are 50 and older, and they are on the rise. These couples have their own unique situations and needs for the future. There may be annuities, retirement plans and life insurance policies. We have had couples retire during the divorce which also brings a multitude of tax issues.
One way to facilitate a smooth transition after divorce is to hire a Certified Divorce Financial Analyst. We work closely with couples during and after divorce to make sure they understand the assets they own, what income can be derived from investments and help them build a firm financial foundation.
Divorce for those over 50 is a critical life situation and likely the biggest financial transaction of your lifetime. Your divorce could determine your lifestyle for the remainder of your years. This is not to scare you, it is just important to have counsel if you are in this situation.
Receiving the Assets You Were Awarded
A common assumption people have during a divorce is they automatically own an asset the court has awarded to them. Just because you were awarded the asset, does not mean you now own it. There is a process to walk through after the divorce to take ownership and control of the property you were awarded weather that property was a home, a brokerage account, a bank account, or a retirement fund. Divorce Strategies Group members can walk you through the steps you need to take to claim the assets you were awarded. This is very important to do as soon as possible so your spouse cannot improperly move or hide funds you were awarded. It is also important to complete the Qualified Domestic Relations Orders (QDRO’s) while your attorney is involved as these need to be filed with the courts and all parties (you, your ex-spouse and your attorneys as well as the judge) need to sign it.
Plan for Peace of Mind
The goal we have for all our clients at Divorce Strategies Group is financial peace of mind. When working with us, you will know what bills you need to pay every month and how much of your disposable income you can spend. You can spend your money in freedom because you know you have a plan for your budget, taxes, and investing. We can also help you adjust your financial plan if you experience new significant life changes.
Planning and budgeting are not fun concepts, but the fruits of these labors can provide a lot of fun (and security) in your future!!
Schedule a complimentary consultation with Divorce Strategies Group today. No matter what phase of the process you are in – just starting, in the midst of divorce and have financial questions or wrapping it up and looking ahead toward your future. We are here to help you thrive after divorce and move on to the next phase with confidence, strength and hope.