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Facing Your New Financial Picture After Divorce

Divorce is difficult. You are both figuring out what your new lives will be once the divorce agreement is signed. One of the hardest aspects to resolve during divorce is just how to face your new financial picture.

Facing Your New Financial Picture After Divorce

Mark Zandi, a chief economist at Moody’s Analytics, who has researched divorce and corresponding demographic trends has found, “Divorce generally results in a significant financial setback for all those involved.”

What used to feel like a joint effort between two people can turn into an all out war. Because of the potential to start World War III, there are things that you can do to prepare yourself for at least the financial aspect of the end of your marriage. Careful planning in advance can help you avoid getting to the battlegrounds unarmed.

Preparing Your Finances for Divorce

The first thing you want to do is create an inventory of all of your assets. This includes your debts too. You need to understand your families assets and liabilities. Have copies or at least access to tax returns, statements from all accounts, household bills and any other important records. Additionally, put together a list of valuable property that includes shared real estate, collectibles, furniture, and antiques or pieces of artwork.

You will want to put everything in writing, in a qualified domestic relations order, or QDRO. This is a legal document that spells out how you and your spouse have decided to divide certain retirement assets such as 401(k) accounts, says Page Harty, a financial planner at wealth-management firm SignatureFD.

It’s crucial that you do not overlook anything valuable. This could cost you significant amounts of money when it comes time to divide marital assets. There are often cases when a spouse will hide an asset from the other in an attempt to get more money or retain ownership of something they hold valuable. Sometimes this cannot be avoided, but sitting down, finding a clear head, and making a list of every asset you are aware of can help prevent this from happening to you (unless of course your spouse has never made you aware of the asset he or she is hiding).

Your shared debts are important too. Just because the marriage is ending, that does not mean that the debt will just go away. Try to pay these debts off before the divorce is finalized. If that’s not possible, make sure you have a clear agreement on which spouse will pay which debt.



The House

It’s tempting to want to keep the house. This is especially true for couples that have school-aged children. It can already feel as if you’re destroying their lives, let alone forcing them to move out of the house they used to feel so safe in. But remember that a house is a big expense and one that might not be worth fighting for. It’s often advised that splitting couples sell the house and split the proceeds. This way, both parties share in the risk and cost that is associated with a selling a home, says financial planner, Matt Mikula.

Mikula shares this example of a client of his. The mother of four had been awarded custody of the couple’s four children in addition to the family’s $1.5 million home and $500,000 in other assets. Not wanting to disrupt her children’s lifestyle, she wanted to keep the house.

But taxes, utilities, maintenance, and other expenses amounted to about $50,000 a year. The client had little other means, in terms of assets and income to cover those costs. As a result, according to Mikula, “she was going to run out of money.”

In the end, the client decided to sell the house. This was six years after the divorce, and due to economic reasons, she received 20% less than what it had been valued at during the time of the divorce.

Additional Expenses

Housing is a huge expense, but it’s not the only one. Other expenses will need to be taken care of, including how much your family spends on food, clothes, and other essentials, like health insurance, which according to financial planners, can be steep.

There are also the unknown expenses. Ms. Church, a financial adviser at Raymond James Financial shared this story. After her divorce, her daughter was invited to play on a volleyball team that traveled extensively. Suddenly she needed to come up with about $400 to $500 a month to cover the hotel rooms, meals and other expenses associated with her daughter playing on this team. Ms. Church says, “there will be unforeseen expenses.” Because of this, she advises her clients to be aggressive when they sit down and figure out their post-divorce cost of living. This is especially true if there are children involved. She also advises to include the impact of inflation.

Stop Seeking Revenge

It’s obvious from almost every tabloid story on divorce that divorce can get ugly when it comes to finances.

One key reminder to keep in mind: The less you spend, the more you keep.

What that translates to is: the more you argue about petty things, the more time you will spend, which automatically translates to the more money you will spend.

Regardless of how terrible the reason is for your divorce, try to remember that the more money that gets put towards divorce is less money that will be available for the settlement.

Financial planner Rose Swanger has this example to share: Her client was married for more than 20 years to a surgeon that earned a seven-figure income. He had cheated on her, and as a result, the two were divorcing. The woman was seeking $300,000 a year in alimony. According to Swanger, the amount she sought was unrealistic due to the fact that the couple owned two heavily mortgaged houses in affluent neighborhoods, and were also paying private-school tuition for their children.

The woman had already worked with two lawyers, running up tens of thousands of dollars in legal fees by the time she consulted Ms. Swanger, who ultimately dropped her as a client. As a result of the ever-increasing legal bills, the woman’s credit score suffered a large hit.

“I don’t blame her for trying to retaliate, but I warned her that a calm divorce is the best divorce,” Ms. Swanger says.

Every dollar spent during the divorce process is a dollar that cannot be split 50-50. It’s advised that you look at your divorce as a way to strike a favorable business deal rather than a chance to seek revenge.

Taxes and Divorcemoney and divorce

Before the divorce paperwork is signed you need to make sure you review what your agreement will mean around tax time. There are different tax laws regarding alimony and child support, depending on what side of the agreement you are on. Be sure that your lawyer or financial adviser explains this before you finalize the financial aspects of your divorce. An agreement that looks equal on the surface might be completely unfair when it comes to tax time.

Financial planner Monica Garver, worked on a case where the husband proposed a division of assets that worked out to be roughly an even split at face value. He proposed keeping $2 million from after-tax investment account and giving his soon-to-be ex-wife $2 million in tax-deferred retirement accounts.

“Each and every dollar [in the retirement accounts] had to pass through the hands of the taxman before the spouse could put it in her pocket,” says Ms. Garver. She encouraged that her client seek more of the couple’s assets to compensate for the money lost to the taxman.

Don’t Forget!

Before you can consider yourself free from your spouse there are some other financial matters that might not seem obvious.

Be sure to update your will, says Ms. Vasileff, a financial planner. Not doing this can put your intended heirs in a difficult situation, she says. She advises you will also need to update a health-care proxy or a power of attorney that names your former spouse.

Lastly, transfer any titles for any real estate, cars, investment accounts or other assets that were held jointly into your name, says Harty of SignatureFD. She also advises a big thing: change the passwords on your accounts, too.

Also, if there was something agreed to in your divorce, like a requirement that your former spouse purchase a life-insurance policy and name you as the beneficiary, you should make sure that the premiums are being paid and that you remain the beneficiary, Ms. Harty says. One option to ensure this is being done: Ask for periodic confirmation from the insurance company.

A Family Law Attorney

There are a number of things that need to be considered during a divorce. You and your spouse will need to come to an agreement that settles every aspect of your marriage.  Child support, spousal support, marital property division can all be agreed to through the process of mediation. Working with a skilled mediation attorney can help ensure you get a fair case.  For advice on divorce, child custody determinations, setting up a co-parenting agreement, dividing marital property, and spousal support you need the expert law firm of Divorce Law LA. Schedule a consultation today.

Divorce Law LA, Esq.

Divorce Law LA

33 S. Catalina Ave. Ste. 202

Pasadena, Ca. 91106

(626) 478-3550

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Financial Tips for Your Divorce

Finances can be hard to manage in general, but if you are going through a divorce, they can feel almost impossible. There are a number of things to consider: will you be receiving alimony or paying it? Child support? What will your “single life budget” be? You’ll want to address these questions as soon as possible. Below we offer some financial tips for your divorce.

Financial Tips for Your Divorce

Build a Team

“Don’t go it alone,” says Mike Lynch, vice president of strategic markets at Hartford Funds. “Build a team today – a qualified team of legal, tax and investment professionals. Maybe it’s your current investment professional, or you may seek a new one that understands your situation better.”

But not just a team of legal and financial professionals – you’ll also want to build a team of “emotional professionals,” such as friends or a therapist that can help you deal with any emotional pain that you are experiencing.


There are some additional things you can do to help your emotional well-being, including:

  • Waking up and getting out of bed each morning
  • Get yourself in the “moving forward” zone
  • Eat well
  • Get inspired
  • Get perspective
  • Do something that will propel you forward instead of just dwelling

These can feel very hard to do following divorce, but if you can place one foot in front of the other, and just try to keep moving forward, it can help a great deal in not feeling overwhelmed by the experience.

Be Civil When Dealing with Your Ex

When it comes to working out aspects of a divorce, including marital property division, alimony, and child custody and visitation, you’re going to want to at least try to be civil with your ex. This might mean working with a relationship therapist that will advise the both of you on how to find a common ground. At the very least, you need to find a way to communicate with each other without having it end in a shouting match. Sometimes email is the best – where people can state the facts. Texts can also work. If you feel comfortable talking with your ex, just remember to record your interactions and what was discussed. Senior vice president of David A. Noyes & Co., Linda M. Conti knows divorce first-hand.  “My parents went through a bitter divorce,” she says. “They separated when I was 3 and the divorce was final when I was 6. I grew up living through ‘what not to do to your kids during a divorce.’ I wish someone could have counseled my parents better through all aspects of the divorce.” You have to remember that staying calm is the best way to resolve the financial aspects of a divorce.

Property Division

Marital property division can be one of the most contentious aspects to be decided during a divorce. State laws govern how the marital property will be divided. You will need to check with an attorney to see if you live in an equitable distribution state or a community property state.

There are four other steps that need to be considered when diving marital property:

  1. Identify the assets owned by you and your spouse
  2. Categorize all assets as marital or non-marital property
  3. A value will need to be assigned to the assets
  4. Devise a plan for the division of assets that is in accordance with state laws

Consider Selling Shared Property

It’s always advised that you sell the primary home instead of having one spouse keep it. Retaining ownership of a home – or the question of who will retain ownership – can often lead to issues. Questions such as: who will take care of maintenance and who will take the utility bills need to be answered. It’s often advised that a couple sells their home and split the proceed of the sale. That way, both sides receive an equal amount.

When it comes to a secondary home, “It’s much more effective to sell the house and distribute the proceeds to the children,” says Ric Edelman, chairman and CEO of Edelman Financial Services. “You get into the issue of fights amongst the kids – issues of maintenance, repairs and upkeep.”

Work with a Divorce Financial Analyst

You might consider working with a divorce financial analyst that can help with your settlement by:

  • Locating assets. This also includes hidden assets.
  • Ensuring information about family finances is accurate and complete.
  • Developing a long-term forecast of how your divorce will affect your finances when it comes to retirement needs, tax liabilities, and benefits.
  • Developing a realistic household budget so that you know where you stand in terms of life insurance, health insurance, and cost-of-living increases.
  • Appraising and/or valuing assets.
  • Preparing financial affidavits that describe your financial and tax implications when it comes to various divorce settlement options.
  • Mediating a financial agreement between you and your soon-to-be ex-spouse.

Update Your Beneficiaries and Your Will
Emily McBurney, attorney and qualified domestic relations orders (QDRO) expert, advises you update your beneficiary that is listed on your life insurance and retirement accounts. It might not make sense now if your primary beneficiary is your ex spouse.

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“Review all of your accounts and insurance policies and change the beneficiaries. A divorce does not automatically terminate your former spouse’s rights to be the beneficiary on your retirement plans, bank accounts, and life insurance policies –- even though your divorce decree might say that your former spouse has waived all rights to the benefits,” says McBurney. “You will need to formally submit a change of beneficiary form to each financial institution. Otherwise, the benefit will be paid to whoever is listed on their forms at the time of your death — regardless of your divorce.”

You’ll also want to do this for your will.

According to certified divorce financial analyst Donna Cheswick, “Meet with an estate planning attorney to discuss your state’s laws regarding possible updates to your will, power of attorney and advanced directives. You want to be sure that your former spouse is no longer entitled to any distribution in the event of your death. And if your settlement agreement requires one party to maintain life insurance on the other, then there needs to be a method in place to be sure this is actually occurring. Just because the former spouse says they will do something, doesn’t mean that they are following through.”

Have a “Single” Financial Plan

When you were married, chances are you had a second income coming in to help with things like child care, the mortgage, and other utilities. You might now be receiving or paying spousal support or child support. You also may not be receiving any kind of support. Whatever your new financial picture is, you’ll need to know how to budget according to your new income amount. Putting this together before entering the divorce process will help you understand your needs following the divorce so you can come to a settlement that works.

Make sure you plan for college tuition, child care, children’s lessons, sports and activities, and your own retirement, taxes, transportation and housing. It’s hard to plan for the unknown future, but try to get an idea of what your 1 year, 5 year, and 10 year financial needs will be.

Financial Future

Considering your financial situation after your divorce can feel daunting and overwhelming, but if you take the right steps, you can be sure to set yourself up for financial freedom. It might take some tweaks, but consider the fact that you are now completely in charge and able to make your own decisions regarding how your money will be spent. Embrace it, and embrace the freedom you now have.

A Family Law Attorney

When it comes to the actual legal process of a divorce, you’ll want to work with a skilled family law attorney There are a number of things that need to be considered during a divorce: child support, spousal support, marital property division, and other things. Working with a skilled attorney can help ensure you get a fair case.  For advice on divorce, child custody determinations, setting up a co-parenting agreement, dividing marital property, and spousal support you need the expert law firm of Divorce Law LA. Schedule a consultation today.

Divorce Law LA

33 S. Catalina Ave. Ste. 202

Pasadena, Ca. 91106

(626) 478-3550