10 Tips for Divorcing Couples


The ‘D’ word. It happens in about 50% of the marriages in America. The reasons for divorce varies by couple but most of the cases have at least some roots in money issues. The tendency for most couples is to run out and hire a lawyer and let them do battle for you. Before you hire the lawyer, a better choice is to hire a financial advisor; someone who can help you sort through the financial minefield that will almost certainly follow. The process of divorce is often a highly emotionally charged environment that gives rise to making many financial mistakes that can be felt for years to come. Here are a number of issues you should consider before hiring your attorney:
1.      It’s most important to understand your current financial situation. What do you own and what do you owe? Be sure you know whose name the assets are in as well as whose name is on the debts. I’ve seen lots of cases where one spouse’s credit was ruined because her name was on debt that the other spouse managed…and managed poorly. Your tax return is an excellent source of financial information. It will indicate where different accounts are located when interest, dividends are paid or capital gains or losses are taken.
2.      Separate your credit. To the extent possible, you’ll want to establish new credit on your name solely while removing your name from joint credit where possible. This will require closing joint credit cards and bank accounts.
3.      Store up emergency cash. You’re going to need it. One or both of you will have to set up new living quarters and it’s going to be expensive. 
4.      Do future budget planning. You may be surprised at how much more it will cost you living separately. A financial planner can be especially helpful in helping you think through what your future expenses might look like. Your planner can help you set up a financial management system for tracking income and expenses. An excellent system we often use with clients is www.Mint.com. It’s easy to use and it’s free!
5.      Consider tax consequences when splitting up assets. Would you be better off receiving retirement plan assets or cash? More alimony and less child support or the other way around? Who should claim the children as dependents on their tax return? Would you be better off with a straight property settlement versus alimony? Each answer depends on your and your spouse’s particular circumstances but poorly thought-out decisions can lead to long-term negative circumstances.
6.      Change your beneficiaries. I recently witnessed a case where the husband died and the surviving spouse came to us for financial help. We soon found out that he still had his previous wife’s name on his checking account and they had been divorced over twenty years! We had to hire a lawyer to negotiate a settlement. Make sure your ownership and beneficiaries have been changed on all accounts and insurance policies.
7.      Consider your insurance needs. First, you’ll want to make certain that you’ll have uninterrupted health insurance. You may also want to consider requiring life insurance to guarantee continued alimony and child support should your ex-spouse die prematurely.
8.      Decide now how college will be funded. College costs can be an enormous expense. If possible, address how it will be paid in the divorce agreement. If you don’t, It’ll be a nagging question unanswered until it’s time for your child to go off to college.
9.      Update your will and estate documents. You’ll need a new will, power of attorney and healthcare directive especially if children are involved.
10. Mediate. Often attorneys are used to extract revenge on the other party. While this may be emotionally satisfying, it can be financially devastating. A few years back I counseled a young couple that they should mediate their divorce. They had relative few assets to ‘split’ and I estimated having their individual lawyers ‘battle it out’ could cost over $80,000. They chose to do battle and their attorney’s bill exceeded that amount…money they both desperately needed. 
Divorce is a messy business, but a business none-the-less. Try to separate the emotional aspects from the business aspects and be sure to get the help you need to get the best financial result possible.