Do’s and Dont’s for a Financially Sound Divorce

Minimize The Financial Burdens of DivorceDO find the divorce process that is right for you

Think about which process is right for you and the needs of your family.  Then, find an attorney who will meet those needs and who you feel comfortable with.  Look for someone responsive and confident, but not overly inflammatory (as that will increase your emotional and financial costs). 

DON’T use your lawyer as a therapist

Attorneys are generally not equipped to deal with the emotional factors underlying a divorce.  Not only will they be unable to adequately help you, you will run up your legal bill.  Instead, consider a process like Collaborative which incorporates mental health professionals to help one or both spouses work through the emotional issues of divorce in order to more rationally make financial and legal decisions.   If you are already in a process like litigation or mediation, it is often helpful to invest in someone who can help differentiate between emotionally driven wants and tangible needs during a time where you are expected to make rational decisions which will affect your life and that of your family for years to come. 

DON’T hire the first attorney you meet or think litigation is your only option

Many people are in such a rush to get started on their divorce, they simply hire the first attorney they meet with.  This is a mistake.  The attorney you hire and the process they use (there are option other than litigation!) can not only have a huge effect on the cost of your divorce, but also on the future of your family.  Meet with multiple attorneys (initial consultations are often free) who have different approaches and practice different methods for divorce.  Educate yourself to make sure you get the most bang for your buck in your divorce. 

DON’T live beyond your income

Until you have a settlement, avoid major changes to the status quo—do not rack up credit card debt or make impulse purchases.  Protect your credit score by pulling a credit report which will show all accounts in each name (even joint ones you may have forgotten you have!) and make it a priority to (at least!) pay the minimum monthly balance on these accounts.  Remember: joint accounts affect the credit scores of BOTH parties.

DO realize you can’t get everything you want

Many people waste a lot of time and money (which hurts both parties as well as the children) arguing over little things like specific appliances or pieces of furniture.  In the grand scheme of things, these usually do not matter, but people often lose sight of that and end up financially hurting themselves for the long term.  

DO draw up an accurate budget

Budget based on needs, not wants.  Draw up two budgets: one pre divorce and one for post-divorce.  Consider those items coming in (income, investment return, etc.) and those going out (check registers, credit card statements, taxes, insurance payments, ATM cash withdrawls, etc.) Also, consider carefully the changes between the two budgets (potential child or spousal support, marital property, etc.)

DO meet with a financial professional

Meeting with a Certified Divorce Financial Analyst (CDFA) or Certified Financial Planner (CFP) can help you understand what you will need from a settlement—immediately and in the long term.  A financial professional can help you feel secure in understanding your current and new financial situations and where there is room to compromise in a divorce settlement.  They can also help you understand the long term implications of a settlement: what is taxable? What isn’t?  Does the change in taxes put you in a new tax bracket?  Will you be subject to any fees? What are new costs you need to worry about?  They can also help make sure you cover all of the assets and liabilities (timeshares, pensions, stock options, pre-paid dues, season tickets, country club membership, etc.) in your settlement negotiations.

DON’T insist on keeping the family home without careful consideration

Many people are emotionally tied to the family home and cannot imagine living anywhere else.  But before you insist on keeping the home, figure out if it is financially feasible in the long term.  A financial professional can help you project expenses associated with keeping the home and figure out whether you will be able to afford them in your new financial reality.  Think about long term equity, taxes, value, maintenance, etc.

DON’T think of gains from the settlement as “extra money”

People frequently make the mistake of looking at gains from a settlement as “extra money.”  The truth is, very few people can afford to keep up the same lifestyle they had pre-divorce.  The same amount of money once used to upkeep one household now needs to upkeep two.  It is prudent to look at gains in the larger scheme of your new financial identity and always make sure to save for emergencies or capitalizing on a one-time payout through investing.