How to Avoid Financial Mistakes in Divorce

If you are facing a divorce and are worried about how you will come out financially, you are not alone!  Most people who think about their future want to make sure that the divorce process works to protect them from being taken advantage of and from missing out on something they are entitled to have.

Karen Covy has an excellent blog and website  that discuss various aspects of getting divorced. In a recent post, she wrote about "10 Financial Mistakes in Divorce You Don't Want to Make".  She listed 10 important issues and it turns out that  Collaborative Law is an effective process to address each of them.  Here are her issues:


1.  "Not taking the time to do an accurate post-divorce budget BEFORE you settle!"  We normally use a neutral financial professional for both parties and one of the standard steps is to prepare a budget for each party for after the divorce.  That helps everyone address the needs of each party as we work out a financial agreement.

2.  "Not insisting on getting all of your (and your spouse's) financial documents."  In Collaborative cases, we start with getting the current statements for all financial accounts and then get any other prior statements that are really needed.  We don't request statements just to request them.

3.  "Not getting assets valued."  If an asset, like a house, business or painting (or anything else) needs to be valued, we get a neutral expert for both parties to do the valuation.  If it doesn't matter or if the parties agree on the value, we don't spend the money to get a valuation.

4.  "Not looking at (and understanding!) all of your financial documents."  One of the great benefits of Collaborative Law is having the neutral financial professional who gathers, studies and organizes the financial records.  Either party can discuss the finances and get help understanding them.  The finances are also discussed extensively in joint sessions.

5.  "Relying on your lawyer to do everything."  In Collaborative cases, we make sure the parties are very active and participating in the preparation and in the discussions at joint meetings.  Most often, we have the parties meeting, without the lawyers present, with the mental health professional on children's issues and with the financial professional on financial issues.  There is a lot of work done without the lawyers being present.

6.  "Not understanding how taxes will affect your support and settlement."  We also discuss taxes and can arrange for a neutral tax expert if specialized knowledge is necessary. When we discuss alimony and property division, taxes are always a consideration.

7."Forgetting about the long term."  Collaborative professionals are very aware of the long-term implications of the negotiations and we can do projections into the financial future.  Considerations for retirement income are always very important.

8.  "Not thinking about insurance."  We look at insurance as an asset and also as a safeguard.  Insurance can be considered in the context of a long-term plan, but it's also the back-up for financial obligations that may continue after the death of a party.

9.  "Sacrificing your own financial security for your children." We try to be as realistic as possible in working out agreements.  There are many different ways to pay for the children's expenses and Collaborative Law provides more flexibility than Litigation does.  It is possible to protect your own financial needs while making sure the kids are provided for.

10. "Making settlement decisions out of exhaustion."  In Collaborative cases, we have a series of meetings, usually an hour and a half to two hours long.  In mediation in Litigation cases, the sessions are usually a half day or a whole day, which can be exhausting.  In court, you are likely to spend a half day to several days or a week.  Collaborative Law provides a safe, measured process without the pressure to get everything done at once.

Bottom Line:  If you have serious financial concerns, be sure to investigate Collaborative Law.  Talk with an experienced Collaborative lawyer.  You should get a second opinion if an attorney mentions Collaborative Law on a web site, but then spends the consultation time trying to talk you out of using the process.  With a lawyer like that, be sure to ask how many Collaborative cases the attorney has actually handled.  Before you decide, talk with a real Collaborative attorney.

Divorce Over 50: Checklist of Financial Issues

For various reasons, many Baby Boomers seem to be facing divorces even after long marriages.  Sometimes both parties reach the point where they want to end their marriage.  Other times, it's one spouse or the other who takes the lead in deciding to divorce.  Even if just one spouse wants the divorce, in Texas the divorce will ultimately be granted if that spouse persists.

Whether divorce represents welcome relief or a distasteful experience that can't be avoided, both parties need to prepare.  The following is a list of financial issues that come up in most divorces after long-term or later-in-life marriages.

1.  Planning for Retirement.  While not everyone has a retirement plan or assets set aside for retirement, it should be a concern for everyone over 40.  The degree of urgency may vary, depending on how far away from retirement each party is.  The tax aspects must also be considered for each type of asset.  Preparing a future budget and working with a financial advisor will be helpful.

2.  Planning for Transition.  This is the transition from being married to single and also may include the transition from working to retirement.  Very often, one spouse has stayed home to take care of children.  That spouse may need some time to get back in the job market and get hired, and may need some education.  Our economy is not yet back to full speed, so finding a job is not as simple as it was a few years ago.  That means that support may need to be a component of the settlement.

3.  Dealing with Health Issues.  Being part of an older age group naturally means that there will be health concerns.  Additionally, health insurance will have to be provided for.  Health issues can affect whether one or both spouses are able to be employed.

4.  Making Living Arrangements.  The divorce may be coming at a time when the parties might have been downsizing anyway, but selling a house is often part of the discussion.  One or both parties may have to find suitable and affordable housing.

5.  Taking Care of Children.  Depending on the children's ages, there may be private school, tutors, college or other education-related expenses.  Then  there's extra-curricular activities.  They have to be coordinated and paid for.  If the children are young, child support and visitation will have to be resolved.

6.  Separating Credit.  Often, one spouse has a better credit record or more income and the credit purchases have been made primarily in that spouse's name.  Joint credit cards need to be separated.  Some debts might be paid off, or they may be allocated in the property division.  A spouse might need to set up some new separate credit cards or accounts while they are still married and there is joint credit to qualify for the accounts.

7.  Managing Debt.  The  parties both need to prepare budgets for the interim while they get divorced and for their post-divorce lives.  Splitting debt 50-50 doesn't make sense if one person has very little earning potential and the other one has high earnings.  The parties need to be realistic.

8.  Allocating Investments.  Each party will probably want or need some investments, if there are some.  They should carefully evaluate the level of risk with each investment.  The parties also need to consider whether the investments promise short-term income or long-term value, and try to fit the investments with each party's needs.  Another factor to consider is how capable each party is to manage the assets.

9.  Updating Financial Planning.  Everyone should have a will and the wills have to be revised after divorce.  Other instruments, such as trusts, insurance, retirement assets, stocks and bonds, real estate and other investments will need to be revised or reconsidered.  You should work with a financial planner who helps people going through divorces.

10.  Providing for Legal Fees.  Since you will be going through a divorce, you will need a divorce lawyer.  Unfortunately, sometimes one party will try to prevent their spouse from hiring a lawyer.  Even in the most agreeable divorces, each side should have their own attorney to review the situation and advise the client.  One way or another, there's usually money available in assets, bank accounts or credit cards that can be used to hire an attorney.  Don't let your spouse talk you out of it.

Most people do a little research and think about the issues before they go see a lawyer about  a divorce.  This list will give you a starting point.  There are probably some issues not covered that may come up in your case.  Be prepared to discuss these and other issues with your lawyer at your first meeting.  Good luck!

7 Tips for Dealing with Debt

Even before the current prolonged economic downturn, many divorces ended up focusing on how to manage the community debt. Some married couples are fortunate and keep debt to a minimum, but a more common scenario is that the marital debt is a significant issue to be addressed either in court or in settlement.

If you are using the Collaborative Law process to resolve a divorce, you will probably work with a neutral divorce financial planner. In litigated divorces, we sometimes bring in a financial planner to work with one side in the case, and sometimes each party hires their own advisor. Working with an expert like that is invaluable in analyzing tax consequences and preparing financial strategies for negotiations or for court.

With or without a financial advisor, here are some suggestions to consider in dealing with debt issues in a divorce.

1. Be realistic. Have an outsider, like a certified divorce financial planner, review your situation and make suggestions. Don't over-commit or be over-optimistic. Your lifestyle will probably be lower post-divorce and it may take a while to get back on your feet. If you're in a hole, plan to take some time to work your way out. Don't try to do it overnight.

2. Go solo and end joint accounts, if possible. Don't pay off and close your individual credit accounts. Make payments, but keep them open. On the other hand, try to close out any joint accounts so that you will not be affected by your ex-spouse's future payment history, or lack thereof. You need to separate your finances, just like you do the other parts of your life.

3. Don't rely on your spouse. It may take you a while to transition to full separation and independence, but you should continuously work for that. Your spouse may have good intentions, but things like a job loss, health problems or a new relationship, among other things, can come along, and suddenly financial performance doesn't match their pre-divorce words. As soon as possible, you need to be independent. Get an expert, if necessary, to help you come up with your own plan.

4. Close out joint bank accounts. For a while, they might be a way for the spouses to show their trust and commitment to each other, but that changes over time. You both need to be independent. There are plenty of ways with electronic banking to make quick payments and transfers, so you don't need joint accounts. Having separate accounts also improves your security and eliminates any temptation to get financial revenge of the spouse.

5. Refinance you mortgage, if you qualify. You can save money, build separate credit and help your ex-spouse rest easier at night. It also gives you more financial privacy.

6. First, pay off the smaller credit cards in your name. You should also continue making payments on all your cards, but concentrate on the smaller ones and knock them off as soon as you can by making extra payments. Generally, it's usually better to keep the cards open after they are paid off.

7. As a last resort, you can consider filing for bankruptcy. For that decision, you should consult with a bankruptcy specialist. Most family law attorneys in North Texas don't handle bankruptcies. Just like you should hire a family law specialist for a divorce, you should look for a bankruptcy specialist to help you evaluate your circumstances. There are serious consequences to filing for bankruptcy, so consider carefully as a last resort.

Divorce can be devastating on finances, but it doesn't have to be. Careful planning, taking a conservative path and getting expert assistance will help you make the right decisions on debts and other financial issues.

For some additional ideas, see an excellent article called, "Know How to Get Debt Free after Divorce" by Amy Lewis in Ben Stevens' South Carolina Family Law Blog (always a good source) from August 8, 2011.