Divorce and Your Finances

divorce investments

Your divorce may be the most significant financial event you experience.  The longer you have been married, the unwinding of one household into two, the division of marital property, and the allocation of marital debt forces you to reconsider your financial future as a single individual.  It is important for you to consider these financial decisions while planning for your post-divorce future.

Financial Decisions During Divorce

Most married couples build their future financial plans believing they will always be together. Married couples plan for joint retirement savings, purchasing a marital home, and having a cash flow and savings plan for their combined income during the marriage.  However, divorce forces each spouse to reconsider all these plans. It is more expensive to plan for two single futures than one married future.  As a result, the first decision is to reconsider monthly expenses as a single individual.  Fill out your Statement of Income and Expenses form accurately so you have a baseline of what you spend each month at the time you file for divorce.  Use the form to see your potential cash shortfall each month to pay those expenses each month using only your net income.  Let that shortfall assist in determining what expenses need to change and what expenses may be covered by the Court ordering spousal maintenance or child support.​

Financial questions and challenges are part of a divorce for everyone.  Divorced spouses of all socioeconomic sectors are facing the same questions mentioned above.  The same is true regardless of the length of the marriage.  Although divorcing spouses of a short-term marriage may have fewer assets to divide, they are still forced to consider the question of how to handle their finances post-divorce. Divorcing spouses of a long-term marriage have the addition of accumulated marital assets and debts over time which can lead to disputes about how those assets and debts are to be divided.

Financial issues are some of the biggest sources of conflict in a divorce.  If there has been a breach of trust in the relationship that resulted in the filing of the divorce, one spouse may believe that the other is attempting to hide marital assets during the divorce. Each spouse may also experience considerable stress about how they will deal with their finances in the future as they transition to a newly single life plan. Speaking with your divorce attorney about these questions so s/he can provide advice about how to deal with those and other concerns that may arise while you are trying to negotiate a property division.  Your divorce attorney will also be able to provide recommendations for financial planners and CPAs to better help you in making educated decisions during the divorce process.

Divorce Strategy

You can pursue several different strategies throughout your divorce process. The right choice depends on your unique circumstances, and you should discuss which strategy makes the most sense for you with your divorce attorney.  This choice will be based on the best option for your divorce needs. For example, some spouses may prefer going to court and having a trial to resolve their divorce.  They simply don’t feel comfortable with negotiating a settlement and want the court to make that decision for him or her.  Other spouses may want to pursue options such as mediation or four-way meetings to reach a negotiated settlement without the need to go to court.  

Attorney fees should be considered when making this strategic decision.  Usually, going to court and pursuing a full litigation strategy is the most expensive option because it requires a longer working relationship for you and your attorney.  It also will require more discovery and more preparation for trial, including preparing witnesses, researching key points of law, completing depositions, and other normal expenses associated with that adversarial process.  Mediation or a four-way meeting (between attorneys and spouses) are preferable options for divorcing spouses whose focus is on maintaining a coparenting relationship.  The process normally requires fewer hours from your divorce attorney, less formal discovery, and few court appearances.  For some divorcing spouses, the negotiation process involves less emotional pain and conflict.

When planning for your post-divorce future, you should consider the divorce costs involved.  What will it cost if you litigate to a conclusion?  What will it cost if we reach a negotiated settlement through mediation or four-way meetings?

Planning 

As part of the divorce process, whether you are going through litigation, negotiation, or mediation, you will need to complete a thorough financial review of your marital financial picture and your projected post-divorce needs. This can be especially important for stay-at-home parents, who need to ensure that they have the funds to support themselves and care for their children with little to no disruption in their lives. While most people will downsize post-divorce, both spouses should consider recurring children’s expenses into their monthly expense budget to avoid an unexpected shortfall.  For example, you may have a child that has monthly medical expenses, tutoring, extracurricular activities, etc. which are known expenses that will be shared post-divorce.  The financial planning that needs to be considered at divorce should not be limited to the first year as a single person; rather, it should also have a plan for several years into the future.  Divorcing parents will need to consider child support obligations and out-of-pocket expenses for many years to come.  Divorcing spouses without children need to plan for future tax consequences for major assets to be received at divorce.

Assets 

Each divorce is unique.  However, there will be assets that become the focus of negotiations between spouses in the divorce process. The marital home is often one of these focus assets. The appraisal value of the marital home may vary greatly.  What if you have a home that is currently under construction when the decision to divorce is made?  What is the current mortgage?  Does having a mortgage that is mostly paid off make it easier or more difficult to determine what to do with the marital home?

Missouri is a fair and equitable distribution state, and assets do not need to be divided by a judge precisely in half. Instead, they are divided to ensure a fair outcome for both parties. In many cases, the marital home may be the most valuable asset owned by the divorcing couple. It can also be an emotional concern as well as a financial one. It is not unusual for a divorce attorney to recommend to their client that s/he do some serious thinking about and make a decision on what s/he wants to do with the marital home. In some cases, one spouse may keep the home and relinquish other assets in exchange.  In other cases, the home may be refinanced in the name of the person keeping it with an equity payment to the other spouse to purchase his or her marital equity. In still other cases, it may be the wisest financial decision to sell the home and split the proceeds between the couple.

It is important for you to consider the monthly and long-term costs to maintain marital property awarded to you in a divorce.  You should also consider if tax consequences apply or if you will incur any other unanticipated expenses associated with a marital asset received during the divorce. 

Should you need the advice of a divorce and family law attorney or have questions or concerns about your situation, know that we are here to help and willing to discuss those issues with you.