It’s no secret that a divorce can be particularly damaging on either spouse’s finances. Unfortunately, many divorcing couples often go through the experience without so much as a safety or a basic understanding of the repercussions of a divorce on their finances.
While the U.S. divorce rate has been in steady decline over the last 20 years, it’s still estimated that more between 40% to 50% of all marriages in the country end in divorce. But among baby boomers, divorces have actually been on the rise, earning the nickname “gray divorces.” For these former couples, the cost of a divorce can be especially high as they no longer have time to recover from the financial damage they incur.
In any case, the consequences of a divorce can be significant for anyone going through it. To keep your finances in good health, be sure to consider the following factors.
Financial Steps to Take Before Divorce
No matter which side of the fence you are on in your divorce, it is psychologically challenging and emotionally draining. As such, these are the most important reasons why you should prep your financial situation before you file for your divorce.
Please note that we’re not suggesting that you do anything illegal, unethical, or something that will be a detriment to your children. These are just a few simple steps that can help make your life a bit easier during and after the divorce.
- Copy your financial records – Gather and copy all financial documentation that has your name on it, including bank account information, mortgage information, credit card statements, Wills, Trusts, and 401K information. Keep the copy in a secured place, such as a safe deposit box or even at a friend’s house.
- Start setting aside funds for the divorce process – Normally, this is only an issue when one spouse has complete control over all of the finances. Oftentimes when this is the case, the controlling spouse will cut off all finances from the other, trying to force them to sign whatever decree is presented in front of them and trying to prevent them from hiring proper representation. Set up your own account, secure the funds you need, and keep it separate from your spouse.
- Open separate bank accounts, credit cards, etc. – Once you know a divorce is imminent, it’s time to set up your own, non-joint bank account and/or credit cards if you don’t have on already. This way, once your joint accounts are divided, you will already have a separate account set up for the deposit. Having your own account will also help you establish proper credit. Our office advises clients to open their separate account at a different financial institution (different company, not branch) until the divorce is complete. Many joint account agreements provide that, should your spouse overdraft the joint account, the bank can look to funds in your separate account to cover the shortfall.
- Obtain a copy of your credit report and monitor it – By watching your credit report, you’ll know if your spouse is trying to ruin your credit with obscene charges, if your spouse is buying gifts for another boyfriend/girlfriend, or if your spouse is distributing joint funds/assets in other ways.
- Open a post office box – Once you have opened new accounts, hired an attorney, etc., you will want to ensure that you actually receive any mail from these institutions as well as keeping them confidential from your spouse. A post office box is easy to set up, convenient, and 100% secure from your spouse.
- Talk with a lawyer about changing your beneficiaries and power of attorney designations – Depending on the timing and jurisdiction of your case, you may want to consider making some changes, however, it is often not proper to do so. You should talk to a lawyer before making any such changes.
Trust us – these suggestions will help ease your already traumatic divorce process and avoid problems prior to starting the divorce process that can be very expensive to deal with during the divorce process.
Be aware, though, that many jurisdictions have Standing Orders that go into effect upon the filing of a divorce petition and prevent some of these activities. If a divorce has already been filed, or if you are unsure of its status, you should talk with a good family lawyer in your area before doing anything.
Organizing Your Finances During Divorce
Here are some tips on how to keep your finances in order while your divorce is in process.
- Get Professional Help – A divorce can take a huge toll on your emotions. One moment you’re emotionally charged with fear or anger, the next you’re feeling sad and lonely. This rollercoaster of emotions is a perfect recipe for making bad decisions. The best way to minimize the likelihood of making costly mistakes is by getting professional advice from a divorce lawyer and financial advisor. This is especially important for women, who still tend to be more negatively impacted by divorce than men, suffering serious setbacks to their standard of living.
- Get Insurance for Support Payments – For divorces that involve children, one partner is usually tasked to pay child support and/or spousal support for the other. The parent taking greater responsibility for raising the children is usually the recipient of such support. But the challenge with making these payments over a long-term period will always be liquidity. Chances are high that the paying ex-spouse could soon find himself unable to pay for support, which in turn means that their former partner will have to shoulder the financial burden of paying the bills. This is where financial advisors can come in by running estimates on marital assets and taking into account factors like liquidity, taxes, and risk to help a divorce lawyer reach a realistic settlement.
- Consider Tax Implications – Taxes are an often overlooked factor in many divorce cases, with many ex-spouses focusing only on dividing assets. For instance, assets of $1 million in a 401 (k) are worth much less than the same amount of money in a taxable account. This is because a 401 (k) will ultimately be subject to marginal income-tax rates when used in retirement. In contrast, the latter will be taxed at a lower capital gains tax rate.
Managing Your Finances After Divorce
After you divorce has been finalized, a new chapter of your life also commences. You have a bright future ahead of you and even blank slate to begin creating a new foundation. Naturally, you will have questions about where to begin, as this can be a confusing time. This is also the perfect chance for you to get all of your finances in order.
- Get Professional Guidance - Gather all of your financial documents and paperwork—everything from your bank account statements to your investments and properties owned. Then, you can sit down with our Collin and Denton County divorce attorneys at Coker, Robb & Cannon, Family Lawyers and your financial planner to form a plan to start off on the right foot.
- Let Go of Emotional Baggage – You will have a flurry of emotions following divorce: anger, loss, disorder, and everything in between. Dwelling on negative feelings can only hinder your growth, rather than helping you move forward. Channel those feelings into other activities—starting a new project, taking up a workout regimen, or joining a religious or a hobby group. Keep the emotions separate from your efforts to advance your career or store away some money.
- New Chapter, New Life, New Career Opportunities – This is your chance to begin life anew. There is no telling how many career opportunities could open up. Whether it is a blossoming and well-paying career endeavor, or simply returning to school to obtain a few more credentials or even another degree. Take the time to spruce up your resume and reconnect with old colleagues. Or, form a network of professionals based on the type of career you would like to have. The sky is the limit!
- Find New Ways to Save Cash – Divorce is costly, in some cases, you may not have much left once the ink on your final divorce papers has dried. Look for ways to save here and there. Remember that every dollar adds up. Perhaps you will have to cut down on a few luxuries—coffee run and grabs every day to every other day, for example, or bringing a bagged lunch to work instead of ordering out. Maybe you need to switch brands of your household items or buy only enough for what you need. Whatever it takes to help your savings grow, think about every penny that you could cut.
- Start Thinking About Making a Will – While we do stress protecting your assets for the future, it is always a good idea to continue protecting those assets for your children and future generations. Update your documents to reflect the beneficiaries you want to receive your inheritances. Also, enlist a trusted person to act as power of attorney in case you become incapacitated, pass away or are otherwise no longer able to make decisions on your own.
Beneficiary Designations After Divorce
During your marriage, you had likely designated your spouse to be your beneficiary. Some documents are easier than others to amend a beneficiary.
- Trusts: If a revocable estate lists your ex-spouse as the recipient, you have the power to alter beneficiaries at your own discretion. Irrevocable trusts are not easily altered, if you and the beneficiary of your irrevocable trust have fallen out of favor, you should contact our Collin County divorce attorney for guidance on this process.
- Wills: A will is the often the cornerstone of most people’s estate planning. This document outlines beneficiaries, names the executor of your estate and designates who will have guardianship of your minor children. A will can take much more time and cost to amend, but if you have minor children, ensuring your estate is passed along to the correct beneficiary should be high on your list of priorities.
- 401(k)’s, 403(b)’s, Transfer/Payable on Death Accounts: These are much easier than trusts and wills to amend and often require completing the proper form and documenting the file.
While we understand you are likely going through many emotions in the wake of your divorce, it is also crucial to make these estate-planning adjustments. In our years of practicing family law, we have experienced past client’s relatives calling and asking if there is any way we can prevent their loved one's estate from going to that person’s ex-spouse.
Are you are interested in filing for divorce with an experienced legal team in Collin County and Denton County TX? Contact Coker, Robb & Cannon, Family Lawyers today!