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Divorce has a way of permeating through many different aspects of a woman’s life: social, familial, spiritual, emotional, legal, financial . . . And whether you’ve been blindsided by the news your husband wants a divorce or you’ve been thinking for some time about ending the marriage yourself, it’s likely you’re experiencing significant upheaval in all these areas.
What can you do to regain a sense of balance? How can you begin to see that proverbial light at the end of the tunnel?
From my perspective, the best thing you can do is to make the financial aspects of your divorce one of your highest priorities. Honestly, I can’t stress this enough. Your finances always require careful attention –but this is especially true during divorce because decisions made now will affect your financial well-being for the rest of your life.
As a Divorce Financial Strategist™, I have helped scores of women reclaim their financial well-being, and over the years, I have found that the most common financial mistakes women make when divorcing fall roughly into three, broad categories: not being prepared, not being informed and not thinking for the long term.
Not Being Prepared
It may seem that there’s no way to be “ready” for a divorce. Certainly, ending the marriage isn’t top-of-mind for most couples, and many happily married women are completely shocked when their husbands announce their intentions to call it quits. Still, there are ways you can be prepared, and they’re all part of establishing (and then maintaining) a solid financial foundation for yourself –and your children. For example, make sure you:
- Have access to funds and credit. Many women find themselves at the beginning of the divorce process without enough money to hire a qualified divorce team. If you’re thinking about divorce, you need to immediately begin to set aside money for the expenses involved. Even if you’re not, it’s important to have funds available to you in your own name, entirely separate from joint accounts. Maintain a credit card in your own name, as well; it may be hard to obtain one later.
Have important documents on hand. Make copies of all your financial documents and legal records before your divorce proceedings begin. Include tax returns, bank and brokerage account statements, wills and trusts, insurance inventories and policies, property deeds, vehicle titles and registrations, etc. (Use this Divorce Financial Checklist to make sure you have all the documents and records you need.) Keep the copies in a secure location not accessible by your husband.
Not Being Informed
Divorce is an increasingly complicated process, and its complexity is compounded by different laws governing separation and divorce in different states. Even before any legal subtleties come into play, though, there are financial mistakes women make that come from simply not having or not remembering the right information. You can avoid some of these if you:
- Know what you own. You should have a working knowledge of all your marital assets. Don’t forget pensions, deferred compensation, retirement investments, stock options, life insurance, annuities, and even country club memberships, accrued vacation time and other executive perks. All these things have value and should not be overlooked when it comes time to negotiate a divorce settlement. In addition, take stock of what you owe (your debt and liabilities), and get a handle on your expenses. If you think your husband may be hiding assets, income and/or debt, take steps to find out.
- Know the difference between separate and marital property. This is an area where different state laws apply, but anything you owned before you married (including your engagement ring) is typically considered separate property. Inheritances, gifts from people other than your husband and “pain and suffering” awards from lawsuits are also generally considered separate. Make sure you do not commingle your separate assets with your marital assets (For example, keep them in a completely separate bank account in your name only). Anything acquired during the marriage, including gifts between spouses, is usually considered marital property no matter which spouse “owns” it or how it’s titled.
- Know what you’re likely entitled to. Keep in mind that an equitable division of property does not necessarily mean a 50/50 split. In general terms, if you live in a Community Property State, like California, whatever you earn or acquire during the marriage is split 50-50. But in Equitable Distribution States, the length of the marriage, income, and future earnings capacity may all be considered. (See a more detailed discussion in my earlier blog post about the difference between Community Property and Equitable Distribution States.) “Half of everything” is a common refrain, but if you’re a 60 year-old homemaker with no professional work experience, you could be entitled to more; or, if you’re in your 30s with an advanced degree and a professional career, your share may be less.
Not Thinking For The Long Term
In the middle of a contentious divorce settlement negotiation, it can be very tempting, perhaps especially for women, to get things resolved, avoid conflict and move on. You may be thinking there are more important things than money or the tiresome who-gets-what of all the “stuff” you’ve accumulated in your marriage. Beware this state of mind. It is very risky, financially. You can avoid some major pitfalls if you:
- Stay mindful of the difference between asset value and asset worth. Getting to keep a paid-off house worth $750,000 may seem like a terrific deal, but don’t forget that the worth of the asset is lessened by the costs of maintaining it. Even without a mortgage, you’ll have to pay real estate taxes, maintenance and utility costs for that house, not to mention that you may be hit with a whopping capital gains tax bill when you sell it, if the sales price is substantially more than what you paid for it. (Don’t forget, as a single person, you still will have a $250,000 exclusion on the sale of your primary residence that will lessen, or possibly eliminate, your final capital gains tax bill.)
- Fully evaluate how your divorce settlement options affect your future financial security. Remember, you get one shot at this, and there are many angles to consider. Work with a Certified Divorce Financial Analyst to analyze all the financial implications, including income and tax consequences, of various settlement scenarios. What seems like a great deal now may spell disaster 10 years down the road. Do the assessment work ahead of time to make the wisest choice.
As turbulent a time as it is, during the divorce process you must Think Financially, Not Emotionallyâ. To achieve the best possible outcome, approach the financial aspects of your divorce as dispassionately as possible. When you’re emotionally exhausted, you might be inclined to make compromises that aren’t in your best interest. But, remember: In divorce, there are no do-overs, and you could be stuck with the consequences of a bad decision. Instead, set your emotions aside, and keep your eyes on what really matters: a secure financial future.
Jeff is the author of the new book, Divorce: Think Financially, Not Emotionally – What Women Need To Know About Securing Their Financial Future Before, During, And After Divorce, which provides women going through the crisis of divorce with the tools they need to secure their financial future. What’s more, he is donating 50% of all profits to the Bedrock Divorce Fund for Abused Women, Inc., a 501(c)(3) nonprofit charity whose mission is to help female victims of domestic abuse and the organizations that support them.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.