Divorce is the largest single financial transaction of most people’s lives, raising important questions that demand immediate answers.
The following tips are excerpted from Ginita Wall’s booklet “150 Ways to Divorce Without Going Broke”. This booklet contains helpful tips on every aspect of divorce, including: before the divorce, gathering records, alimony, tax returns, navigating the divorce, accumulating cash, hiring an attorney, child support, property division, and life changes after divorce.
Before the Divorce
- Before you separate, use joint funds to repair your automobile and home, buy clothes for yourself and your children, and other family expenses. Begin your divorce with these expenses already paid, rather than arguing with your spouse about who should pay them later.
- Learn about the laws of your state. In Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, all community property states, marital assets are divided equally between the spouses. In most other states, the judge can divide the assets in any way that seems fair.
- Protect your separate assets. In most states, money you brought into the marriage, plus gifts and inheritances, are yours, if you can trace them to assets you now own. Save all the documents you will need to prove your separate property.
- Borrow from a home equity loan or line of credit. Mortgage interest is tax-deductible and the interest rate is low compared to credit cards. However, if you would like to keep the house, be sure that you will be able to handle the higher payments after the divorce.
- Withdraw from your IRA only if you have no other option. You’ll pay a 10% penalty in addition to the regular tax if you withdraw before age 59-1/2.
- Consider selling unwanted items to raise cash. First, be sure you both agree to sell the property, and that no restraining order bars you from doing so.
- If you can’t find any financial statements, make a copy of any loan applications. They generally have the same information and are signed as a true statement of assets and debts.
- Write a summary of important facts. Include the date you married, your children’s birth dates, the date you separated, property brought into the marriage, and other events. This list will provide important information for your attorney, mediator, or paralegal.
- Get the records you need before the divorce is final. After the divorce, if you need records regarding the rental property you are receiving, the tax basis of the investments you get, or copies of past tax returns, your ex may not be very motivated to produce them.
Hiring an Attorney
- Get the best help you can afford. A “cheap” attorney is not always the best value. An attorney with low hourly rates may make irreparable mistakes or end up costing just as much by taking twice as long to prepare documents. And if you represent yourself, you may make costly mistakes that could be avoided by adequate representation.
- Do some tasks yourself. You can gather documents, file papers, and do other tasks that secretaries, paralegals, or law clerks are paid to do, saving yourself the hourly rate of the legal support staff.
- Make sure your attorney has not represented your spouse or your spouse’s business, or has any other conflict of interest. To assure your attorney has your best interests in mind, never use the same lawyer as your spouse.
- Keep a telephone log of every divorce-related conversation you have with your spouse, attorney, or other advisors. Include the date and a brief summary of what was discussed. This log will help to avoid any misunderstandings about what was discussed.
Alimony and Child Support
- Identify all income for you and your spouse, both taxable and non-taxable. Start with your tax return for the taxable items, and then look in your check register for any deposits that might point to non-taxable income.
- Document your living expenses. Use a budgeting form or software to create a list of past expenses and a budget for your future needs. Keep receipts, cancelled checks, and other documentation so that you can back up your claims in court.
- Include a cost of living adjustment clause in your child support agreement. This will avoid expensive and frustrating trips back to court to negotiate increases to child support payments.
- Include late payment fees in your child support agreement. These fees provide an incentive for timely payment and may eliminate the need to go to court to enforce the agreement.
- If you have been out of the house for more than three years, have a written agreement or court order granting your spouse exclusive use of the residence. The house will still be considered your primary residence for two of the five years before sale, and you will preserve your ability to exclude $250,000 of gain when the house is sold.
- Don’t forget often-overlooked assets. Frequent flyer miles, vacation and sick pay, season tickets, club memberships, timeshares, magazine subscriptions, and prepaid insurance all are assets that have value and should be split.
- Retitle real property that is in both of your names. Ask your spouse to remove your name from the mortgage for property you don’t receive. If your spouse gets the house and doesn’t make the payments, the lender can come after you if your name is still on the mortgage.
- Take taxes into account when you divide property. Money in retirement accounts generally is worth less than money in bank accounts, since the retirement money will be taxable when you withdraw it. Reduce the value of such accounts by the taxes you eventually will pay to see if you are receiving a fair share. Ditto highly appreciated assets or depreciated rental property.
Life Changes after Divorce
- Store a copy of your final decree in a safe place. You may need to refer to it in future court proceedings, for Social Security when you retire, when you write a will, or if you decide to marry again.
- Plan ahead financially. Begin a savings and investment plan to provide for future goals such as college education and retirement. Now that you are on your own, it is your responsibility and pleasure to take good care of yourself.
- Think of divorce as business transaction. You were involved with your spouse in a partnership that did not work out, so wrap up the loose ends cleanly. If you have children together your lives will be intertwined forever, so work things out and separate on good terms.
- Revise your will and name new beneficiaries. Once your divorce is final, you will probably want to change your heirs. In some states, previous beneficiary designations are void after the divorce, so even if you want to designate your ex as your heir, you must do so affirmatively after the divorce.