C-Suite Advisory

10 Financial Tips To Divorce Smarter

Couple having an argument

Important work obligations, a busy schedule, strong emotions, and family discord make dissolving a marriage very difficult and stressful. Although most people who are divorcing know that they need legal and financial advice, they may not know that there are some common mistakes to avoid that will have a significant impact on the results. Here is a list that will help you to protect yourself and your financial assets.

    Divorce can bring out the worst in people. Be prepared that your spouse may take punitive action, even if abuse is not present. He or she may drain joint bank accounts, remove or destroy financial records or incriminating evidence, hide financial assets, cancel life or health insurance policies, destroy or remove personal property, overpay or fail to pay income taxes, delay billing customers, fail to pay bills, squander marital assets, bounce checks, fail to pay child support or alimony, file frivolous and costly lawsuits against you, or run up debts after becoming aware that you have filed for divorce. Take steps to protect yourself, including moving half the cash to an account in your own name, ordering a credit report frequently during and after the divorce, putting a freeze on joint credit cards, closing out joint credit cards with a zero balance, and notifying investment firms that a divorce is pending and approval from both of you is required for any changes or withdrawals.
    Put copies of bank and other financial statements, paystubs, 1099s, recent tax returns, deeds, estate documents, evidence of abuse and/or infidelity such as credit card statements, social media posts, emails, and phone records in a safe place outside the home before alerting your spouse that you are filing for divorce. Give a copy to your attorney and bring these records to any negotiation, mediation, or trial that you attend.
    Have independent professionals represent your interests. Do a realistic budget of what your expenses will be after the divorce and ask your financial advisor to prepare a financial plan for you. Provide your advisor with statements of all of the financial assets, including the cost basis of non-retirement assets, so that person can better advise you. It is preferable to own higher cost basis assets, as the tax bill will be lower if they are sold for a profit later. Except for ROTH IRAs and ROTH 401Ks, which are valuable because they grow tax-free as long as the rules are followed, retirement accounts will be subject to ordinary income taxes as those assets are withdrawn. It may not be to your advantage to take more than half of those accounts. Child support is neither deductible nor taxable. Alimony is neither deductible to the payor nor taxable to the recipient for separation or divorce agreements signed after December 31. 2018. Get advice for your specific situation, including liquidity needs, risk tolerance, and long term goals.
    If your spouse is unrealistic or adversarial, let your attorney handle the negotiations once you have made an informed decision about what you expect to receive in the divorce. Your spouse may try to wear you down through intimidation, endless negotiations, or pointless arguments. Limit contact to an online divorce communication tool if you have children. If you are able to negotiate an amicable divorce, which is rare, get legal and financial advice first before you agree to anything.
    It will cost you money every time that you call your attorney’s office, so limit the small talk. Read books on divorce and do research online for basic questions you have. Deal with his paralegal when possible. You will be charged for the paralegal’s time at a reduced rate.
    You may have a very good lawyer, but he or she may not be skilled in investments, complicated business valuations, or tax issues. A tax expert may be needed for pension calculations or a forensic accountant if you suspect that funds are being diverted from a business. If you own real property or a business in another state, consult with a real estate or business lawyer who is licensed to practice in that state. The state laws where the property or business is located supersede a divorce agreement issued in another state.
    It is unlikely that you will receive much more than half of the marital assets. Get professional advice and be realistic about what you can expect to receive as your share of the assets so that you are not wasting time and driving up the costs to divorce. Inherited assets and gifts kept separately are not included as part of the marital estate in most states, but there are exceptions. If you signed a pre-nuptial agreement, your lawyer will advise you as to what you can expect to receive in the settlement.
    Don’t expect your busy attorney to remember every important detail of your case. Keep a log of the expenses that you are to be reimbursed for and bring it to the negotiations. It is easy to forget about items such as credit card points, health savings account balances, pending tax and other refunds, club memberships, season tickets, and accrued vacation benefits, so keep a detailed list of all assets and debts handy whenever you meet with your attorney. Make sure that he or she has a list of what you expect to receive in the divorce. Request that credit cards and other debts be paid off before assets are distributed. Even if the divorce agreement requires your spouse to pay the debt, you are still liable if he or she fails to pay it if you signed for a card or car loan. Insist that loans on assets your spouse will retain must be paid off or refinanced in their name alone within a certain period of time. Don’t let these debts become your problem later on and affect your credit score.
    Whether you are giving depositions, or going to mediation or court, arrive ahead of time, dress appropriately, and act respectfully with the opposing counsel, mediator, or judge. Only answer the question being asked and remain calm. Bring a typewritten list of your request for the division of assets and debts and make sure that your lawyer also has a copy beforehand.
    Take time to read the agreement to make sure that everything you discussed with your lawyer is in the document before you sign it. Have a checklist with you that you can refer to and have mistakes and omissions corrected while it is still possible. If it is not in the agreement, you won’t get it.
    Your attorney may be willing to prepare quitclaim deeds for real estate or refer you to a real estate attorney. Verify that bank and investment accounts are retitled properly. Make sure that the beneficiaries have been updated on retirement accounts, annuities, and life insurance policies soon after the divorce is final. Make an appointment to update your estate documents, including your power of attorney, health care power of attorney, will, and any trust documents.

Keep detailed records, stay organized, and be vigilant. The outcome of your divorce is up to you.

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Rosemary Lombardy
Rosemary Lombardy is a financial advisor with over 35 years of experience and a domestic abuse survivor. She is the founder of Breaking Bonds, a free resource for abused women, and author of Breaking Bonds: How to Divorce an Abuser and Heal—A Survival Guide. Rosemary is an opinion columnist for the CEOWORLD magazine.