Excerpted from the booklet “150 Ways to Divorce Without Going Broke“
Divorce is the largest single financial transaction of most people’s lives, raising important questions that demand immediate answers.
Here are some helpful tips on every aspect of divorce, including: before the divorce, gathering records, alimony, tax returns, navigating the divorce, accumulating cash, hiring an attorney, child support, property division, and life changes after divorce.
Before the Divorce
- Cancel all joint credit cards, including charge, department store, and gasoline card accounts. Even if a court rules that you aren’t responsible for charges made by your spouse after you separate, the credit card company can hold you responsible while you and your ex sort it out.
- Before you separate, use joint funds to repair your automobile and home, buy clothes for yourself and your children, and other family expenses. Begin your divorce with these expenses already paid, rather than arguing with your spouse about who should pay them later.
- Remember that judges usually enforce the status quo, so start the processes now that you will want to continue after your divorce. For example, go back to school, get braces for the kids, begin medical treatments, etc.
- Open a post office box that you can use for your mail before you separate and while you are in the process of divorce. Confidential information can be sent to you there, and it provides a stable mailing address as your life changes.
- Accumulate money in an easily accessible bank account in your name. Although eventually, you will have to tell your soon-to-be ex-spouse about the funds, you will be able to use the money to get through the divorce.
- Apply for credit cards in your own name. These cards have multiple uses: as an easy way to access money during the divorce, to establish credit in your own name, and to use when you cancel your joint accounts.
- If you need quick access to cash, borrow funds from your parents, your 401(k), or a credit union. The cost of these sources of funds beats credit card interest rates by a wide margin.
- Make a clear copy of all tax returns, loan applications, wills, trusts, financial statements, banking information, loan documents, credit card statements, deeds to real property, car registration, insurance inventories, and all insurance policies. Copy all papers having to do with money now, so you won’t have to subpoena them later.
- Don’t delay gathering financial information, even if you are not sure if you want to divorce. Knowledge about your finances will make you a better partner if the two of you stay together, and will help you get the best settlement possible if you don’t.
- Copy records that you can use to trace your separate property, such as an inheritance or a gift from your family. These assets will remain yours as long as you can document them.
Hiring an Attorney
- Read a book or take a class on do-it-yourself divorce even if you plan to use an attorney or mediator. Knowing how the legal process works will mean that your attorney won’t have to explain it to you—at his or her normal hourly rate.
- Try mediation instead of litigation. The litigation process creates an environment in which two spouses fight against each other, instead of working together to solve the problems of property division and custody arrangements. Mediation is private, less expensive, and kinder to your children than litigation.
- If mediation won’t work, consider arbitration. Arbitration is less expensive than court, but lets you “rent a judge”, an impartial observer who may be able to help decide any issues remaining in your settlement.
Alimony and Child Support
- Do not waive your right to alimony except after close consideration of all of the facts and a thorough discussion with your attorney. Once waived, the right to alimony cannot be re-acquired.
- Consider receiving your alimony as a lump sum payment instead of monthly checks. The default rate for monthly alimony payments is about 50%. A smaller lump sum that you actually receive is better than monthly payments that never arrive.
- Fighting over child support in court is generally unnecessary. Most states have legal guidelines based on income and child sharing arrangements that do not allow for negotiation or tantrums. Ask your attorney to compute support according to your local guidelines.
- When deciding whether or not to keep the house, consider the cost of maintenance, repairs, homeowner’s association fees, gardeners, and other household expenses. Although you may be able to afford the mortgage, the other expenses may exceed the amount your budget.
- Consider the value of professional degrees and licenses. In some states, these assets are marital property, and you are entitled to a share of their value.
- Don’t forget often overlooked assets. Frequent flyer miles, vacation and sick pay, season tickets, club memberships, timeshares, magazine subscriptions, and prepaid insurance all are assets that have value and should be split.
- If you allocate part of the retirement plans to the non-employee spouse, use a QDRO (Qualified Domestic Relations Order, pronounced “quadro”). A QDRO is a court order used to separate retirement property (except IRAs) and should be prepared by a family law attorney or a QDRO specialist.
Navigating the Divorce
- Find common ground and proceed from there. Even if you and your soon-to-be-ex can agree only on minor points, that’s a starting place. Document your understandings in writing, and build on your agreements, rather than focusing on disagreements.
- Don’t let guilt rule you. “Please release me, let me go” goes the country song, but don’t give up everything to buy your release. Your spouse will still be unhappy, and you’ll be equally unhappy when you find yourself impoverished by your foolish gesture.
- Don’t leave home until you have to. Once you move, you may have trouble getting your personal items, and you’ll also have difficulty gaining custody of the children you’ve left behind. And if you and your spouse both want to keep the house, the resident spouse is more likely to win.
- Don’t let your spouse turn off the utilities and phone. If your spouse moves out and asks the utility companies to cease billing him, they may turn out the lights. Contact the utility companies to be sure they will continue service in your name.
- Pay your attorney fees personally. While it is tempting to pay legal fees from your business, don’t. Most divorce costs are not tax deductible, and paying the expenses from your business may make it possible for your spouse’s attorney to join the business in the lawsuit and scrutinize its records in detail.
Excerpted from:150 Ways to Divorce Without Going Broke, by Ginita WallCPA®, CFP with Jessica Richman.