I’ve been divorced three times (really). Each time, my financial stability suffered blows that took months — or even years — to recover from. But with each subsequent divorce, I learned a little bit more about how to protect myself and I rebounded faster.
Thankfully, you don’t have to get divorced three times to learn these tricks. I spoke to lawyers, financial planners and other finance gurus to help you survive your divorce without losing your sanity — or your financial stability.
Start saving for your divorce before your divorce.
Going through a divorce can be expensive, both financially and emotionally. Attorney fees, therapy, court fees and new living expenses add up, so it’s a good idea to start putting aside some funds to cover these costs. This might mean spending less and saving more, or putting some of your existing financial resources in reserve, depending on your situation.
And while we might not think of emotions as “financial impacts,” they can affect your behavior and decisions, so it’s important to pay attention to how you and those around you — like your kids — are feeling and working through this change, says Monica Padineant, a certified financial planner and client adviser at Laird Norton Wealth Management in Seattle.
Be strategic about the timing of your divorce.
The timing of the divorce is often overlooked. If you or your spouse is expecting a large bonus from work or other large monetary distribution in the near future, those would be considered a community property asset if you’re still married when they’re paid out, Padineant says. Another example is that someone who’s been married for more than 10 years may be eligible to receive Social Security benefits on their spouse’s earnings.
“Of course, no one should stay in a bad situation simply for the money,” says Padineant. “But if the divorce is amicable, it might be worth waiting if financial considerations like these can ease the transition.”
Start a budget.
If you’re in a situation where there are two incomes, consider how a change of income is going to impact how you live. The parent who takes on primary custody usually carries more of the financial burden when it comes to the kids.
If you’ll only have your income or a spousal maintenance payment going forward, look at what you need to keep the household going, the kids engaged in their lives and everyone maintaining a healthy life. You might need to cut some expenses, but focus on what’s most important before making dramatic changes.
Start building a budget so you know how much is spent on household expenses, food, clothing, transportation and especially how much is spent for the kids. This will help a judge determine how much, if anything, should be given in spousal or child support, Padineant says.
Put together a net worth statement that lists your assets and liabilities and start gathering financial records. Make sure you account for all your property and whether it’s separately or jointly owned as this will help in the discussion of who gets what. Also review the contents of any safe-deposit boxes.
Examples of financial records that will be required: bank statements, investment account statements, credit card and loan statements, pay stubs and income tax returns. And review your tax returns that have been filed jointly or separately by your spouse, and make sure all taxes have been paid to date, says Padineant.
Keep your emotional spending in check.
Don’t allow your emotions let you do anything rash. Avoid making large purchases or creating additional debt that might cause financial hardship later on. Don’t make major decisions, such as quitting your job. Consult your attorney before moving out of your house. And don’t give away assets that are jointly owned.
“Divorce can be a confusing time,” Padineant says. “Try not to make it more complicated.”
Consider tax implications in your settlement.
If in the divorce settlement you receive assets from a 401(k), you have the option of specifying in a qualified domestic relations order (QDRO) how you want to receive those assets. A QDRO allows you to take money out of the 401(k) penalty -free even before age 59 and a half, and then everything else can be rolled into an individual retirement account (IRA).
This can be a good way to get access to some cash that you can use to make the transition to the next stage of your life, Padineant says.
Negotiate everything now.
To avoid future legal battles, you must be very clear in your agreement. For example, make sure that payments to be made are clearly delineated with dates, amounts and methods for how collections will be made.
In addition to basic child support, parents may divide the payment of expenses often referred to as “add-on” expenses. Add-on expenses may consist of medical, health, therapeutic, dental, orthodontic, extracurricular (such as camp) and child-care expenses. Because these expenses vary month to month and sometimes can be open to interpretation, they’re likely to be the most litigated area.
“Be sure to have strong default language in the agreement for nonpayment and a provision about legal fees if there is a default,” says Lisa Zeiderman, an attorney who specializes in family law and is also a certified divorce financial planner. “Don’t put in provisions that prohibit litigation or create a condition precedent that has to be fulfilled before you can get into court.”
The state provides what is essentially a collection agency to collect support on a monthly basis. Requesting that child support be enforced by the state at the time of the initial settlement — no matter how amicable the divorce seems — removes the emotional aspect of arguing over child support. It also provides for enforcement services such as garnishment if the payer refuses to pay (even years down the line).
After the divorce is final, Zeiderman cautions parents not to make side deals about money. Stick to the agreement or have an addendum drafted, she urges.
Don’t forget the college years — even if your kids are toddlers.
The court has the authority to order a parent to pay college expenses, says Zeiderman. Returning to court is costly and stressful, so parents should consider how they plan to pay for college during their divorce — no matter how young their kids are.
Protect your credit score.
With a smaller income after a divorce, it’s often harder to get credit (if it’s not already harmed through the divorce process). A good divorce attorney will try to get in front of credit issues by reviewing credit reports and removing a spouse from accounts where permissible, says Devon Slovensky, a family law attorney.
The parent who keeps the marital home will generally have to refinance, so maintaining credit is an important part of the divorce process, she adds.
If you have an international spouse, consider the immigration impacts.
If you sponsored your international spouse, you made a promise to the U.S. government not to let that person fall into poverty. Even if the relationship fails, the sponsoring spouse is still on the hook for this obligation.
“It could last until either party dies,” Slovensky says. “[Your] child turning 18 has no bearing on it. In fact, if a stepchild was sponsored in the immigration process, there could be an ongoing obligation to the stepchild as well.”
Divorce is difficult, but getting ahead of your finances can reduce some of the stress for you and your kids. But long before a divorce is on the horizon, you can take steps to “divorce-proof” your finances simply by making sure you’re an involved partner.
“It is my personal belief that people do not pay enough attention to their money. Do not depend on someone else to take care of you,” Zeiderman says. “When the divorce comes, you will have to take care of you. Money is power, so don’t place yourself in a less than powerful position.” n