Divorce can be financially ruinous, especially for women who are unprepared. When you think about divorce, especially if it’s really new to you, you probably feel anxious and overwhelmed. It’s a big deal! There are a lot of different things involved, and it’s hard to think about retirement accounts and refinancing and credit card debt when the world around you is crumbling. Still, it’s something you’re going to have to do. You’ll want to make sure you spend some time determining what your assets and liabilities are, considering the tax implications of keeping or giving up those assets or liabilities, and coming up with financial plans that help you get the best possible new start for your post divorce life.
I’ve seen women make a lot of big mistakes in their divorces, and the most devastating mistakes are the ones that are financial because they have such a long lasting impact on a woman’s life. I try to do everything I can to educate women about divorce and give them the tools to make the best decisions possible, so I’ve gathered here a list of the 12 major mistakes I see divorcing women making.
You’re probably thinking, “Wow, 12 mistakes! That’s a lot!” And it’s true, it really is a lot! I want to spend a lot of time talking about these things to make sure that you don’t make some of the same mistakes that I’ve seen other women making. Divorce is hard enough without making serious financial mistakes on top of it.
You may feel like your marriage was a failure, but there’s no reason to feel that way about your divorce. You’ve got one chance to do it, so you might as well do the research and do it right.
Divorce is complicated, both emotionally and financially. If you’re headed towards divorce, this list will help give you a few things to look for or consider that maybe you haven’t had a chance to think about yet. It’s always a good idea to talk to a professional (like an attorney, a CPA, or even a tax expert) to get an idea of what to expect financially in your divorce. Every divorce is different, and every couple has a different set of assets and liabilities, so your financial future may not look exactly the same as the next person’s. It definitely can’t hurt to get a little extra information that is specifically targeted to your unique situation. Still, failing that (or, perhaps, in addition to that), at least consider my list of twelve financial pitfalls for Virginia women facing divorce.
1. Not enough money on hand.
When a man and a woman separate, one thing almost always happens: the higher earning spouse starts having his paychecks direct deposited somewhere else. Technically, of course, whatever you make after separation is separate property, so I understand why this happens. That doesn’t mean that the higher earning spouse doesn’t owe any support to the lower earning spouse, but usually there hasn’t been any kind of support (child or spousal) ordered at this point, so the higher earning spouse keeps it all to himself for a period of time, leaving the lower earning spouse without any money on hand to pay bills, make the mortgage on time, or buy groceries.
You’re going to need money on hand when you separate, even if you’re planning on living separate in the same home. You can be sure that money between you and your soon to be ex won’t be quite as free flowing as it used to be, and if you earn less than your husband, it’s going to put you in a bit of a financial jam.
It’s a good idea to get a little extra cash back at the grocery store, or start picking up some of those gift cards to places where you regularly shop that you find at the checkout line. (Neither one of these things will show up as separate items on your online statement, so your hubby probably won’t figure it out, and it can help you out a ton.) Apply for a loan or get credit cards if you don’t have any in your name. Open a separate bank account, especially if your hubby already has, and have your paychecks direct deposited there. Make sure you have access to money if you’re in a tight spot. Chances are, you’ll come across a situation (like when you’re hiring an attorney, maybe) where you need access to a fairly substantial amount of money quickly.
2. Little to no pre separation preparation.
Think about what you’ll need in the coming year ahead of time, and plan accordingly. Don’t be that woman who drives off in the head of the moment with an overnight bag and a car that needs a state inspection and four new tires. If you know that you and your husband are going to separate in the new future, take care of all those expensive things that you’ve been putting off. Go to the doctor (and take the kids while you’re at it), get the braces, pay the activity fees, buy the new tires, get the inspection, and repair the roof. If you do it now, you’ll be able to use marital funds. If you wait until later, you may be paying for your tires all on your own.
Think smart about the future, too. If your husband is about to receive a big bonus or a raise at work, don’t separate until after he gets it. That way, you’ll be entitled to a portion, too, rather than letting him keep it all because it was received after you separated. If you’re a military spouse, consider how long you’ve been married. Are you close to being a 20/20/20 spouse? If so, you may want to drag things out a little longer. Timing is everything with divorce just like for everything else, so you want to make sure that you consider all the possibilities before you make a careless or unintentional move that might hurt you later on. It can make a big difference, so you should be sure you prepare for your divorce carefully. Read about the process, and consult with a professional. Don’t be afraid to ask questions if you’re not sure!
3. No documentation.
Just about anything in life is all about what you can prove. If you don’t have great documentation, it may be hard for you to prove what you have, what you’ve earned, what you owe, and, essentially, what all of your assets and liabilities are. You will definitely want to have copies of tax returns, loan applications, credit card statements, mortgage interest statements, bank account statements, and pretty much everything else you can get your hands on, because these documents will make it so much easier for you to begin to figure out how to appropriately and effectively divide everything between you and your soon to be ex husband.
Not only that, but a lot of times finding copies of these documents can be instrumental in planning for the future, especially since your income is going to be cut pretty dramatically. After all, in a divorce, no one walks away with more money than they had beforehand. You’ll take the income that you had, divide it in two (probably unequally, because it’s rare that both spouses earn exactly the same), and support two households with the same money. It’s almost always a difficult period financially, so it’s a great time to analyze your spending and, if possible, find out where you can cut back a little. Tax returns, especially, are incredibly important. If you’re worried about hidden assets, the tax return may show you how to find them.
The more information you can get your hands on, the better prepared you’ll be, both now for your divorce and in the future for your brand new start. Your attorney can probably help you find this stuff in the discovery process, but that will take time and cost money. If you have it on your own, you can move much more quickly and easily through the process, and you won’t have to spend money asking your husband to provide documentation to you. Not only that, but you’ll be able to spend some time looking at what you’ve spent, where you can make cuts, and figuring out how to make your brand new start as easy as possible.
4. Not taking accurate inventory.
Virginia is an equitable distribution (as opposed to a community property) state. We classify property as one of three things: separate, marital, or hybrid.
Separate property is anything that was earned or acquired before the marriage, or received as a gift or inheritance before or after the marriage, as long as it wasn’t from your spouse. Marital property is anything that was earned, purchased, or otherwise acquired during the marriage. Hybrid property, on the other hand, is a combination of the two, so it’s part marital and part separate. An example of a hybrid asset would be something like a home or a retirement account that existed prior to marriage, but which was maintained, contributed to, or paid for during the marriage with marital money.
You have an interest in anything that is either marital or hybrid, so you should be sure that you’re taking inventory. Just because he purchased the home, for example, before your wedding doesn’t mean that you don’t have an interest. If you improved the home (whether you did the work personally or paid someone else to do it), you have something called “sweat equity,” in the house because of it’s appreciated value. Not only that, but if you made the mortgage payments together, you also have an interest in the equity that accrued as a result of your contributions as well. Don’t write this interest off!
You should also take inventory of safe deposit boxes, make sure you look into all bank account statements, view pay stubs, retirement account statements, and even insurance policies. If you have a business together, it’s not a bad idea to engage a forensic CPA to look for signs of additional (unreported) income. Hobbies or side businesses that generate income are also good places to look. Expensive hobby equipment should also be appropriately valued. Check into all of these things, and be sure you don’t unintentionally sell yourself short.
5. Not paying attention to consequences (like taxes).
Most divorce attorneys are not also tax attorneys, so we often recommend that our client go see someone else to figure out exactly what kind of tax consequences might stem from their divorce. A lot of women feel very emotionally attached to the marital home (usually because its where their children were born and grew up), so they do everything they can to keep it, without really thinking about what keeping it actually means. Taking the home in the divorce can result in a surprising amount of tax liability, not to mention the added cost of insurance and upkeep. (Without a hubby around full time, are you going to need to hire a landscaper? Or a housekeeper? Doing it on your own is very different than doing it together.)
Talk to a tax attorney if you have questions about what happens if the IRS decides to audit you later on. Should your separation agreement include a clause that indemnifies you? What about filing joint tax returns after separation? Usually, we leave it up to the client, and lots of clients like to because it keeps them in a better tax bracket. Still, it can have unintended consequences, and you don’t want to get stuck paying taxes on income that you didn’t ever know anything about.
6. What you don’t know won’t hurt you.
When it comes to divorce, what you don’t know absolutely can hurt you. Not only that, but it can be very expensive. It’s important that you take the time to find out all your options so that you can make the smartest decisions possible. You should learn all about the legal process, take time to inventory your assets, explore your current finances, make plans for the future, check out career options (if applicable), and do everything else you can think of to make sure your divorce runs as smoothly as possible. Your attorney will give you advice, but you know more about your situation than your attorney. You may want to do a little detective work on your own, and certainly be sure to ask questions about anything you’re not entirely sure about.
7. Confusing money and emotion.
Attorneys are great at a lot of things (but, of course, I’m biased). One thing that we’re not particularly good at, though, is dealing with emotion. Because I work in family law, I feel like I’m called upon to deal with emotion pretty often, and it always makes me uncomfortable. Even though I’ve handled lots of divorces, I really don’t have any specialized training or education that equips me to handle an emotional breakdown. I like to think that I’m a relatively normal person who is capable of giving decent advice to people who are going through incredibly difficult personal situations, but the truth is that I really do lack the training.
And, also, I don’t take insurance.
Your divorce feels very emotional. That’s normal! However, as far as your attorney and the court are concerned, your divorce is pretty much just a business transaction. A marriage is like a business and it consists mostly of different assets and liabilities that need to be fairly divided between the two business partners. Although it’s true that the judge CAN (theoretically, at least) take into account the negative and positive monetary and nonmonetary contributions each party made to the marriage (meaning that the judge can consider both the good things you did to build up your marriage, and the bad things you did to tear it down), in most cases, the final split looks unnervingly close to 50/50. That’s just the way it is. Fault sometimes matters, but mostly it doesn’t, because the judge thinks its fairer if everybody has the tools available to make as fresh of a new start as possible. Why does it matter what the judge things, when you’re most likely going to negotiate an agreement? Well, the truth is that no one would sign an agreement that was totally one sided, because they know they could always take it to court and the judge would (most likely, at least) award something very close to 50/50. Why sign an unfavorable agreement when you could go to court and just have the judge award pretty darn near 50/50 anyway? So, the reality is just that agreements that are too far off the 50/50 mark don’t get signed. It’s more a question of which 50% you want than whether you actually want things to be divided 50/50 at all.
It’s a business transaction. You should think of it that way, and do your best to keep your emotions out of it. If you’re having trouble dealing with the emotional side of things, you should enlist the support of a licensed, trained mental health professional. They do take insurance, and they’ll help you deal with your anger, grief, or resentment in a productive way.
8. Not standing up when it’s necessary.
Why do women always feel like they need to be nice? I don’t know the answer to that, but I know I’ve felt that way, too. I don’t like other people to think that I’m being mean or too harsh. Have you ever felt like you were being bull dozed? Probably so. Women, especially in the South, are raised to make nice with other people. We’re supposed to be sensitive, supportive peacemakers, and that makes it hard for us to be comfortable with saying no or being difficult, even when we know that it’s warranted. We don’t want people to think that we’re difficult, or rude, or too pushy, so we end up laying down and taking it, rather than standing up and fighting for what we deserve.
I see this happen all too often in divorce, and usually it goes hand in hand with a husband who knows exactly which buttons he can push to make his wife do whatever he wants. Don’t be that girl. Fight for what’s yours, and make sure you’re getting what you need out of your settlement. Don’t underestimate your needs, or fail to ask for something (like spousal support) because you’re uncomfortable or feel guilty. You’ll underestimate your needs this way, and end up putting yourself in a tough spot. Remember, too, that spousal support is taxable, so you’ll need even more than you think to pay the taxes on it.
Don’t be afraid to ask for what you deserve. If you’re not sure what you’re entitled to, ask about that, too. But the time to find out is now, and then you should be sure you’re ready to stand up for what you deserve.
9. Not being willing to take control.
If your husband has been in charge of managing some part or other of your marriage, that’s going to have to stop soon. It’s time for you to take control of your own life and all of the pieces in it. Listen to your attorney, ask questions, make plans, and figure out how to accomplish your new goals.
This is your divorce, and your one real chance to get what you need out of your marriage. Take what you can, don’t apologize for it, and be prepared for the first steps towards starting over.
10. Not preparing for the worst possible situation
In any situation, it’s important to prepare for the worst, even though we always hope for the best. Somehow, thinking about (and preparing for) the worst gives us a sense of perspective and also helps us to really, really think through these situations and come up with ways to cope. Chances are, the absolute worst case scenario probably won’t happen to you. But thinking about what it is and how you would deal with it ahead of time can give you some peace of mind and also a plan, both of which can be super important.
If you don’t have enough money to live on, what will you do? Take out a loan? Borrow from your parents? Move in with your sister? Can you get welfare or food stamps to help out temporarily? Are there any shelters that will help provide you with a place to stay? Some shelters not only provide actual housing for women, but also give gas or Wal Mart gift cards to help women in trouble. Some have a community closet for women to use before court appearances or job interviews, too. Before you assume that you don’t need help from a shelter, find out what services they provide.
Don’t panic and let money rule your decisions, or make you feel like you have to stay in an unhappy, unfulfilling, or unsafe marriage just because you can’t afford to leave. Remember, so many services exist to help good people temporarily while they get back on their feet. There is no shame in needing or asking for help when you need it!
11. Forgetting to develop a career
If you’ve let your career fall by the wayside as you promoted your husband’s career and took care of your children, you’re not alone. But you’re probably going to find that the reality of your post divorce life will force you back into the workforce, whether you’re prepared for it or not. Child and spousal support awards are not generally overly generous, and you’re kidding yourself if you think your soon to be ex hubby is going to still be willing to spend extra money to make sure you can stay at home raising your children.
If you lack training, your credentials are now out of date, or you never had a chance to get the kind of education you need to secure a well paying job in today’s tricky market, now is a good time to make that chance. Pre separation, again, just like with the tires, is a great time to spend marital money on something that will allow you to get your feet back under you after the divorce.
Your spousal support award may also provide you with a little extra money for tuition, books, and living expenses, if you ask for it. The best thing to do is to come up with a plan before you head to court (or start to negotiate your agreement) so that you and your attorney can decide exactly what to ask for. Now is a great time to get your career back on track, even if you’ve stayed at home (or seriously reduced your hours) prior to now.
12. Skimping on professional help
You really do need all the professional help you can afford. If you hire a cheap attorney (or use a blank form that you find on the internet and write your own separation agreement), you may end up with a settlement that is less than you could have gotten otherwise. What kind of deal is that?
In divorce, like with everything else, you get what you pay for. Financial advisors, tax attorneys, certified financial planners, forensic CPAs, and business valuators can also be real assets, especially in some of the more complicated cases. If you don’t want to hire an attorney, a mediator is always a good option. If you’re looking for an alternative to traditional divorce, a collaboratively trained attorney can help you negotiate an agreement with the help of other professionals, like a child specialist and a financial specialist, who are there to help protect both of you and your husband’s post divorce futures.
It’s also a good idea to see a therapist, especially if you’re feeling the emotional strain.
Sparing the expense on the professionals that will help you navigate through your divorce is a mistake. It’s a good idea to get the best advice you can afford, so that you protect yourself, both now and in the future.
The more careful you are, the better (and more smoothly) your divorce will run. It’s important that you consider each of these things, and start to ask the questions that will allow you to craft the best divorce possible. Divorce is one of the biggest financial transactions in a woman’s life, so you should take care to be sure that yours is as good as it can be. Pay attention to what you’ll need to do right after separation, and all the little ways you can make your life a little easier. Employ the right people to help you make the decisions you’ll need to make, and be sure that you’re willing to take a stand for what’s yours. You really only have one shot to make it work, so make sure you take it seriously and protect yourself.
For more information, or to speak with one of our divorce attorneys, give our office a call at (757) 425-5200.