Navigating your finances before, during, and after a divorce
July 30, 2018
Brittain Prigge, CFA
President and Head of Relationship Management, Balentine
In today’s Instagram-worthy age, people use many terms to describe divorce: “lovingly separating;” “parting ways while remaining committed co-parents;” and, perhaps most famously, “consciously uncoupling.”
In the end, however, it all boils to the dissolution of marriage, which can be painful, difficult, and even downright nasty. As a wealth manager, I’ve walked many clients through the process of divorce. Balentine is often the first call made by one or both spouses, and we have helped many avoid costly mistakes. If you are beginning to think about divorce, below are important considerations to make before, during, and after the process.
Before Filing for Divorce
- Ensure adequate liquidity. Divorce is expensive. Period end. Typically, one of the first things that occurs once the divorce process starts is that one spouse moves out of the house. Bachelor pads are far from inexpensive, and you now have doubled the daily cost of living. There are also fees for legal counsel or mediators, therapists for children, and other professional services. Divorce proceedings do not happen overnight, especially in more financially complex situations. Ensuring there is enough liquidity to cover these new costs is important to financial security.
- Timing is everything. Tom Cruise filed for divorce from Nicole Kidman days before the couple’s 10-year anniversary in 2001. Under California law, a marriage lasting more than 10 years is classified as “long term,” and requires a spouse to pay alimony until his or her partner remarries. Coincidence? Given the high-powered counsel Cruise retained, likely not. However, all is fair in love and war. If your spouse’s job pays out in a big year-end bonus or there is some other imminent financial windfall, it may be smart to wait to file until the payment comes so that it’s considered joint property. There are also emotional aspects of knowing when to file. Family lawyers often see spikes in divorce inquiries right after the new year and after Labor Day when couples have just dropped off their last child at college.
- Understand the full balance sheet and titling of assets. Make copies of all important legal documents before the divorce. This includes tax returns, bank and credit card statements, loan applications, wills, trusts, financial records, banking information, brokerage statements, loan documents, credit card statements, deeds to property, car registration, insurance inventories, and insurance policies. If you have a closely held business, ensure that there is an updated valuation on the company; if not, demand one once proceedings begin. The titling of assets is also hugely important. Time and again, I have seen a spouse devastated when they unexpectedly have to sell or hand over half of the value of an asset that they brought into the marriage and put in joint name. Don’t, in the name of love, add your spouse’s name to an investment you think of as yours!
- Seek your own counsel. You need someone to look out for you. Whether you seek an entirely new firm or advisor for financial, tax, or legal advice, know that, as an independent client, everything you tell your professional should be held in confidence. Independent counsel can also help you walk through steps 1-3 and prepare adequately if and when you decide to file.
Once You’ve Filed for Divorce
- Talk to your children. No matter your child’s age, divorce is extremely painful. As such, you should find a qualified psychologist to help them deal with their new reality. Balentine has a go-to psychologist who has helped counsel clients’ children—some of whom didn’t initially think there was a need. More than once, I’ve seen fathers uninvited to weddings or relieved of the privilege of walking their daughters down the aisle or serving as a groomsman due to a recent divorce. Younger children may act out at school or turn to harmful distractions, so always err on the side of caution by making this a necessary step.
- Everything is negotiable. I have seen divorce agreements get as specific as custody arrangements for pets, holiday schedules until children reach age 18, social media policies for minor children, and even birthday party agreements. If something is important to you, it’s negotiable. That being said, everything also has a price, so come prepared to bargain hard on the things that matter most while compromising on other areas.
- Mediation, arbitration, or litigation? Couples should avoid litigation at all costs. Typically, when a divorce reaches litigation level, it’s because no agreement can be reached on child custody, child support, or spousal support. In litigation, everything becomes a matter of public record, and it is typically much more expensive, drawn out, and painful for all parties. Mediation and arbitration are preferable methods, as they are typically much quicker. Furthermore, records stay private—protecting you, your former spouse, and your children. Mediations are non-binding, so if you believe there’s a chance your ex-spouse will back out of an agreement, arbitration may be a better choice.
- Surround yourself with people you trust. Most important is to have people who know and love you available for support. Ask for help. Divorce feels like failure, and one often just needs a hug from someone who doesn’t have a dog in the fight.
When Your Divorce is Final
- Obtain a copy of your certified divorce decree. You will need this to do many of the below steps.
- Open new accounts. To avoid hurting your credit, sometimes it’s best to open new accounts before closing joint accounts.
- Close any joint credit accounts. The last thing you want is to end up responsible for your ex’s credit card purchases.
- Change beneficiaries and update your wills and other estate planning documents.
- Retitle assets and update name/address information. This is applicable to any real property such as homes, rental properties, and automobiles.
- Run new tax projections. You may be in a new tax bracket post-divorce, so it’s important to be proactive in understanding what you will owe in order to avoid withholding too much or being hit with a huge tax bill come April 15th.
- Update your insurance policies. Ensure that your life, health, homeowner’s, and disability insurance policies reflect your new status.
No matter what name you give it, divorce is painful. Following these steps before, during, and after may mitigate some of that pain and help you get to the other side sooner.