10 Steps to Protect Your Money in Divorce

It’s no secret that divorce can be expensive. I am asked every day by potential clients how much will going through a divorce cost. It’s not just about the attorney’s fees; rather, it’s also about your monthly expenses post-divorce (i.e., your mortgage payment, utilities, insurance, etc.). Everyone emerges from a divorce financially in a different place. In a simple case, you and your spouse’s finances should take an equal hit. But what happens when you don’t have a simple divorce case? Here are 10 steps to take as you start the divorce process.

1. Find out how much money you have.

Whether you consider yourself rich or poor, you may have assets that you didn’t realize existed, and you can’t protect what you don’t know is there. That’s why one of the first things I recommend to my divorce clients is to find out what money and assets you and your spouse have. Once you know the total of what you own, you can then start figuring out what may be your financial future upon a divorce.

2. Don’t take steps to hide money from your spouse.

Once you find all your assets, do not take steps to then hide money or assets from your spouse. Actively hiding money in anticipation of a divorce is a terrible strategy that may result in increased attorney’s fees, a loss of credibility with the court, and a terrible relationship with your spouse post-divorce.

3. Open your own bank accounts.

If you don’t have a checking and savings account in your own name, open them now. You will eventually need them once you and your spouse divide the bank accounts. However, the purpose of opening the accounts now, is to relieve your stress level. If all your money is in a joint account, you may constantly worry that your spouse will abruptly withdraw all the money. That is a real risk, and it does happen. If you worry that telling your spouse that you want to separate the joint accounts could result in your spouse taking all the money, then you may want to consider withdrawing half the money into an account only in your name. However, there is more involved in this decision if the joint account is paying all the household bills. If you are taking half of the account but paying $0 toward monthly expenses, that will be a problem for both your spouse and the court.

4. Create a reserve fund.

Now that you have your own bank accounts, you need to create a reserve fund. A reserve fund is a cash reserve that’s specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.

5. Consider who you may need to hire.

That list includes a divorce attorney, but it also may have a divorce mediator, a forensic accountant, a therapist, a financial planner, and a real estate agent. Hiring a professional when necessary is a good idea to help you avoid making a mistake and getting the help you need during an emotionally difficult time.

6. Think about insurance.

Do you have health insurance post-divorce? Will you need to secure your own home and auto insurance? Do you have children? If so, do you have life insurance? If you do have life insurance, who is listed as the beneficiary?

7. Consider tax consequences.

You need to make sure you are not taking the assets that have not been taxed while your spouse receives the tax-free assets. Who can claim the mortgage interest and real estate tax deductions the year you are divorced? What is your new annual income? Do you need to redo your withholdings at work? Will you need to make quarterly tax deposits?

8. Remember to discuss child expenses outside of monthly child support.

Monthly child support does not pay for everything. You need to have paragraphs in your Parenting Plan for uncovered medical expenses and extracurricular activities. Otherwise, there is no structure for how you should pay for summer camp or sports activities.

9. Don’t just focus on receiving the marital home at divorce.

Many divorcing individuals get emotionally attached to their home and make it the focal point of the divorce. Before you consider receiving the house as a win, think about whether you can afford to win it. Can you afford to refinance, pay out your spouse’s equity, and afford the new monthly mortgage payment? Can you afford the monthly upkeep or annual maintenance? Think about the real costs of winning the home at divorce so you don’t have buyer’s remorse.

10. Don’t simply go to battle with your spouse.

You shouldn’t hire an attorney with the goal of arguing over everything in court. For many divorcing couples, that goal results in both spouses have little savings and higher debt post-divorce. Instead, work with an attorney who will tell you want you don’t want to hear so you know the true value of your case. Then try to negotiate from that knowledge base to a settlement either through mediation or through the attorneys. A trial should be a last resort and not a goal when filing for divorce. Leaving the division of your family and assets to a judge is very risky as the judge will only hear evidence about you and your family for a limited number of hours before making a judgment that will affect you and your children for many years.

A few closing thoughts. Treat your spouse the same way you would like to be treated. Share information and documents when requested. This will encourage your spouse and his/her attorney to so the same. Avoid emotions when making divorce decisions. Yes, divorce is an emotional time; however, you need to make rational, fact-based decisions to receive the best results in a divorce. Last, stay focused on your top three case goals and ignore the rest. Discuss the cost vs. benefits of pursuing certain goals so you can decide whether a goal is worth pursuing.

Should you need the assistance of an experienced divorce attorney, or have questions about your situation, know that we are here to help and ready to discuss those questions with you.

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