Divorce is a life-changing challenge that most people hope to never have to face. Unfortunately, many married couples find themselves in the throes of divorce. No matter how you got there, it’s important to think about the financial aspects of getting divorced. If you’re not careful you can find yourself facing financial challenges as a result of the divorce. The professionals at The Jimenez Law Firm understand the ins and outs of ending a marriage. If you’re without a prenuptial agreement, then you’ll want to follow these tips on how you can protect your finances during a divorce.
Financial Mistakes to Avoid During the Divorce Process
Before, during, and after the divorce process there are steps you want to take and things you want to avoid in order to better manage your personal and family finances. Avoiding these costly mistakes will put you in a better financial situation once the dust has settled. Follow these tips to learn what you should and shouldn’t do before, during, and after your divorce.
Tracking Your Expenses
It’s a good idea for everyone to track their expenses to be more aware of how they spend their money. However, it’s especially important to track your expenses once you know you are on the path to divorce. You’ll want to begin tracking expenses prior to filing for divorce or being served with divorce papers if at all possible, including:
- Childcare expenses
In addition, it’s important to also understand what you spend on other things including:
If you’re unsure of what you’ve spent in the past, you can typically review old credit card or bank statements to get a better idea. This information will be important to you and your divorce attorney when it comes to dividing assets and debts as well as deciding if maintenance payments are appropriate.
Hire a Divorce Attorney
It’s not uncommon to make the mistake of not hiring divorce lawyers. Most of the time, people skip this step because they are trying to save money. The truth of the matter is that hiring a lawyer to get you through this complex process is one of the best things you can do. Family law attorneys specializing in divorce are one of the best assets you can have on your side as you navigate this difficult time. Divorce is a complex legal and financial matter. One wrong step and you could face lasting consequences. A qualified attorney can assist a spouse who doesn’t want to be taken advantage of and help them get a fair divorce settlement. In addition, an attorney will be fully aware of the divorce law in your state. This is vital when it comes to fair divorce settlements.
Don’t Rush the Process
While it may be tempting to hurry through the divorce so you can move on with your life, this could have serious consequences. Even in cases of physical, emotional, or financial abuse, rushing may result in an unfair distribution of marital assets. It’s not uncommon for one party to take advantage of the other party’s desire to finalize the divorce quickly. That’s not to say that you should drag out the process longer than you need to. Instead, it means to be thorough, follow the proper steps, locate and value all assets and debts, and take advantage of professional assistance.
Prepare Your Documentation
You’ll want to prepare all important financial documents sooner than later. Your attorney will give you an idea of what they’re looking for such as:
- Credit card statements
- Pay stubs
- Tax Returns
Having this information ready to hand to your divorce lawyer when they request it will save you the time and stress of digging it out later.
Properly Value Matrimonial Assets
There are different ways assets are valued. This is especially true for complex assets such as businesses. It’s best for each spouse to seek out a professional, independent valuation of any major assets to ensure they are fairly divided. Just trusting that the other spouse’s valuation is accurate can lead to problems down the road. In addition, it’s not uncommon for the value of assets to change over time. One spouse may think the change isn’t as significant as the other or one spouse may feel as though there isn’t any change at all. By each getting professional valuations for assets, they can better understand where things are on the value scale.
Consider the Possibility of Hidden Assets
While most people wouldn’t believe that their former spouse would hide assets, it does happen. These assets may include overseas accounts, trusts, or even transferring assets to friends or family members until after the divorce. When a spouse wants to keep more than their fair share of assets in a divorce then they may take these extra steps to hide them. If there’s a possibility your spouse has hidden assets, then it’s best to hire a forensic attorney or accountant specializing in locating these hidden assets. This ensures you get the fair share you’re entitled to.
Your divorce lawyer can also help you when it comes to getting a court order that requires your spouse to produce documents and answer questions pertaining to their assets. Financial institutions can also be required to provide records of a spouse’s bank account.
Don’t Take on More than Your Fair Share of Marital Debt
While understanding the value of assets and finding hidden assets is important, it’s equally important to be aware of all marital debts. One way to make sure you’re aware of all debts is to order and review a copy of each spouse’s credit report from each of the three major credit bureaus. This will show auto loans, credit card debt, consumer debts, student loans, personal loans, and mortgage debt for the family home. In addition, you and your legal team will want to identify any hidden business liabilities including bad debts as well as any pending lawsuits.
As liability and responsibility rules vary by state, your attorney will advise you on the laws and regulations in your area. Some states follow community property laws while others may follow equitable distributions. However, it is important to understand that creditors may come after one spouse if the other spouse has unpaid joint debts including credit cards or personal loans taken out in both names. This stands true even when the other spouse had no idea the debt existed.
It’s best to uncover these problems early in the divorce process or before you begin the divorce process. These debts should be paid off or refinanced so they are the sole responsibility of the spouse who opened the accounts.
Protect Your Credit Score
One of the biggest mistakes you can make during a divorce is not protecting your credit score. Your personal credit score will help you after your divorce is complete. It plays a major role in determining what type of home you can live in, what automobile or student loans you’re able to get, and so much more. You may think you’re out of the woods once you’ve decided on the division of marital property and debts. However, if your former spouse fails to pay their portion of the debt it can have a negative impact on your credit score. Even if you agree to split debts equally, you’re still legally responsible if they don’t pay their fair share. This is another reason why paying off shared debts early is important. It’s better to close those accounts so you don’t have to deal with the possibility of your spouse not paying. You can also look into refinancing the debts to be just under one person’s name.
Watch Your Spending Before the Divorce Is Finalized
Despite your best efforts, it is possible your credit score may take a hit from the divorce. You can mitigate some of the damage by following the steps above. However, there are other ways you can protect your financial future as well.
While it may seem tempting to make big purchases during your divorce such as a new home, new car, or even presents for your children, it’s important to realize you’re still technically married until the divorce is finalized. These big-ticket items may be viewed unfavorably by the court and could impact the division of marital assets and debts. At the very least, you should have a discussion with your accountant and divorce attorney if you need to make any large purchases.
Get Your Fair Share of Retirement Assets
In many cases, spouses each have their own retirement accounts. However, this isn’t always true, or the accounts may have significantly different amounts. Thankfully, there’s something you can do to make sure you get your fair share of retirement plan assets.
A Qualified Domestic Relations Order, also known as a QDRO allows these pensions or retirement plans to be divided without either party having to incur early withdrawal penalties. Your divorce attorney will be able to walk you through this process and help determine what a fair amount would be through mediation.
Don’t Make Legal Financial Changes Without Telling the Court
Once you file for divorce, you may wish to change the beneficiaries in your will, life insurance, or retirement accounts. These things are all covered during the divorce process and while taking care of them on your own may seem proactive, it can actually hurt your case. In fact, making these changes before your divorce is complete could put you at risk of criminal contempt charges. It’s best to make the changes at the appropriate time during the divorce proceedings.
Consider Long-Term Child Support Needs
If you and your spouse have children together then ensuring that the children have both emotional and financial support until adulthood is an important factor in divorce. The court will consider the income of each parent, where the children will spend their time and the age of the children.
However, when discussing child support, it’s important to think beyond the day-to-day expenses. You’ll also want to think about future educational expenses including sports, driver’s ed, any dual credit courses, expensive school trips, etc. You’ll also want to think about potential medical expenses including insurance premiums. And, in the event of a death, a life insurance policy that will help cover these expenses should one of the parents pass away is vital.
Another way that divorce affects the child’s education is through financial aid awards for college. Even if one parent is the primary caregiver and the other parent is mostly out of the picture, it’s not uncommon for financial aid to consider the income of both parents, which could mean smaller financial aid awards.
Parents will also need to agree on which parent will claim the child on their tax return as only one household can claim the child each year.
Learn to Thrive in Your New Financial Reality
No matter your financial role in the marriage, you’ll need to adjust to your new financial reality during and after the divorce. This could mean that you will have less income because you’re required to pay spousal maintenance and/or child support or child maintenance. This could also mean that you no longer benefit from the income of your former spouse. It could even mean that you’re now faced with additional challenges of more expenses when it comes to childcare, utility payments, phone bills, housing, and more.
It’s not uncommon for there to be a period of time where you may feel financially overwhelmed or unsure. The best thing you can do is create a list of all necessary expenses and optional expenses to see where you can eliminate costs if needed. Be honest with yourself and focus on making decisions that will work toward future financial stability. Don’t feel as though you have anything to prove or need to spend money you don’t have to impress anyone. Don’t allow your emotions to cloud your judgment. Don’t open yourself up to more financial issues than necessary. Instead, your focus for your financial matters should be on creating a new future for yourself and your children.
Consider Mediation or Arbitration
Mediation and arbitration are two options that many divorcing couples use to save time and money during the divorce process. In addition, these options provide more control for the spouses when it comes to the settlement agreement and keeping things private.
When couples can’t reach an agreement or a consent order, then they will move forward with a trial which means that the details will be entered into public court records and matters will be up to the decision of a judge.
Often, your divorce attorney may encourage you to go the way of family mediation or arbitration to help you save time as well as money. During this time your lawyer will provide legal advice and recommendations to help you on the path to a fair divorce settlement.