Big Money Mistakes in Virginia Divorce
Because I’m in the business of divorce, I often hear this joke. Question: “Do you know why divorce is so expensive?” (The joker then expects the jokee to say, “No, why?”) Answer: “Because it’s worth it!” (Then, of course, the jokee is supposed to roll with uncontrolled mirth.)
Maybe I’m a humorless attorney, but I don’t think so. I personally just don’t find that joke very funny, and I doubt if many of my clients do, either. It’s not that I don’t think divorce is worth it; in fact, in most of the divorces that I’ve been involved in, divorce is a great, liberating thing (though no doubt also both incredibly difficult and extremely emotional). After all, why should you stay in a relationship that is abusive, unproductive, unfulfilling, or unhappy? At the end of the day, you only get this once chance in life. You had good intentions, and I don’t doubt for a second that you’ve done everything you could to save your marriage first. Very few (if any!) women just duck and run when the going gets tough; they don’t find themselves in my office until they’ve spent entirely too long trying to make their marriage work. They needed to exhaust every opportunity before they could say enough is enough. I hear that all the time, and I fully support every woman feeling free to do whatever she needs to do to get to the point that she can get the divorce she needs without feeling guilty or like there was something more she could have done to fix things.
It’s not that I don’t agree that divorce isn’t “worth it”; on the contrary, I do. I just don’t think the joke is funny at all. The thing that I don’t find funny is the assertion that, in exchange for freedom, some great financial price must first be paid. Though it’s true that many divorces are expensive, it certainly doesn’t have to be that way. The reason most divorces are so expensive are because the people getting the divorce make one of these ___ big money mistakes. Though in the long run they may agree that the divorce was “worth it,” one of my goals, as an attorney, is to make sure that freedom is purchased at less of a premium. After all, isn’t it my job to look after my client’s best interests? Well, it is my personal (and professional) opinion that my clients are best served by obtaining their divorce as cheaply as possible—because the less money is spent on the divorce, the more money that client has to start over fresh after divorce. Wouldn’t you agree?
I think it’s definitely worth planning ahead to avoid making the types of mistakes that will drive up the costs of your divorce case. Contrary to popular opinion, YOU have a lot of control over how the expenses in your divorce case add up. The attorney you choose also has something to do with it, but you should feel like, after an open and honest discussion of your finances, your attorney is taking your personal situation into account when it comes to formulating any type of necessary case strategy. Ask about tips to save money, and ask your attorney to tell you if you’re stepping into risky financial territory. You should feel like your attorney has your back and is taking your concerns seriously. You should also avoid these 6 big money mistakes.
1. Not knowing your family’s finances—like, at all
In most families, there is a spouse that handles the finances, and a spouse that doesn’t. It’s something about division of labor; I’ve seen very few marriages where both spouses had a full and complete idea of their day to day spending, assets, and debts. This isn’t a judgment. It really doesn’t matter how you’ve decided to handle your finances during your marriage. Still, once you’re moving towards divorce, you should definitely start gathering up financial information, if you don’t already feel like you have a complete picture.
What should you have? Well, for starters, you should gather tax returns, statements from any investment or retirement accounts, credit card bills, household bills, and any other important records that you might have lying around the house.
Certain things are more difficult to value, like a family owned business, a share of a professional partnership (like a law office), or even stock options. It might be necessary to hire a forensic accountant or a business valuation expert. Ask your attorney to help you figure out what steps you might need to take to determine the appropriate value of these often hard-to-value assets. Of course, hiring another expert may end up costing you more, but it’s important not to overlook or undervalue these types of assets, because then you could wind up with less than your fair share. (And while it may make your divorce cheaper, you could be cheating yourself out of a substantial about of money in the long run—which is NOT a good financial decision!)
Debts matter, too, and it’s important to pay attention to them. Just like assets, debts are typically divided in divorce. Without knowing what you have AND what you owe, it’s difficult (if not impossible) to have a true idea of your financial picture.
2. Insisting on keeping the house
I know, I know. The house is important. It’s a symbol, to many women, of a lot of things: personal, professional, or financial success; independence; memories, of children and happiness and living. Whatever your house means to you, I understand. Regardless of your marriage not working out the way you might have planned, I can totally understand if the house still means something to you and you’d prefer to keep it. If only for the lack of desire to update your address with the DMV or pack all your things into carefully labeled boxes, I can understand your desire to stay put. When you add to all of that the fact that, if you stay, your children will still live in the same school district, I really understand.
Still, keeping a house (especially on one income, where you used to have two) is a complicated proposition. It should be undertaken carefully, after consideration, and not emotionally or rashly. You don’t want to drain your cash flow or cut into your savings to maintain a house that is just too expensive for you to really realistically undertake on your own.
Remember to consider taxes, utilities, and the costs of routine maintenance—how much will that cost you? Can you (really, being honest here) afford it? Or are you just delaying an inevitable move?
You need to be having open, honest discussions about whether it’s even possible for you to keep the house. It’s not about what you want, it’s about what you can pay for—and, sometimes, it’s better to let the house go than to fight for it. Now is the time to start thinking, not just about what you want to happen, but about what you need to happen.
3. Worrying about “revenge” or proving the “principle”
Getting even and proving that you’re right in principle can be expensive. It may sound simple, but it’s amazing how many people forget that the more money you spend fighting, the less you get to keep.
Though they may talk a good talk, avoid experts and attorneys who advocate aggressive tactics. Will they succeed only in getting you a larger share of a smaller pie? Or, worse, the same share of a still smaller pie? Lots of times, fighting over things reduces BOTH spouse’s overall take home portion of the settlement. Though you may not care what happens to him, it’s hardly worth it to keep fighting if it ends up disrupting the financial future for both of you.
Whatever happened to bring you to the point of divorce, there’s no question that it’s emotional and difficult. Your husband has probably behaved badly, and hurt your feelings in the process. I don’t know that I’ve ever seen a woman who wasn’t emotionally rattled because of her divorce. Feeling that way puts you in a vulnerable, unpredictable frame of mind, which can lend itself to behavior that you wouldn’t ordinarily consider. I understand—it’s natural to want to feel like there are repercussions or consequences for his bad behavior. Still, you’d do well to remember that every dollar you spend fighting over your divorce is one less dollar that you could agree to split 50/50. Is it worth it? In most cases, it’s not. Try to stay calm, keep a rational perspective, and focus on where you want to be the day after your final divorce decree is entered. It’s better for you financial bottom line and, in most cases, it’s better for your overall physical and mental well being, too. Win-win.
4. Disregarding tax consequences
Taxes matter, and it’s important to make sure you carefully consider the tax consequences of any proposed settlement (especially ones that seem fair on the surface!). Pay attention to whether your husband (or his attorney) is proposing that he keep after tax investment accounts while you keep all the tax deferred accounts—even if the value is “equal,” it won’t be equal (or anywhere close to it) once you pay the taxes! Capital gains, too, can sometimes get an unsuspecting wife into trouble. Don’t keep investments that are almost entirely capital gains and let him keep ones that gained less, or you’ll wind up facing a much bigger tax bill.
Questions about tax consequences? Consult a tax attorney or CPA before you sign an agreement.
5. Forgetting to consider do it yourself or non-attorney alternatives
Just because most people follow a particular path when they get divorced doesn’t mean that you automatically have to. When you’re setting your goals and taking stock of your options, don’t forget to consider less traditional divorce alternatives, like hiring a mediator or do it yourself divorce.
Working with a mediator is an interesting way to get divorced. Though it definitely has its advantages and disadvantages, it’s definitely an option worth considering. Keep in mind that usually mediators are not also attorneys, and that it is not a mediator’s job to advise you personally. One mediator is usually shared between both spouses, and it is the mediator’s job to help the couple reach an agreement.
We usually recommend that women interested in working with mediators meet with an attorney first, just to get an idea of what the law is, what a court might award, and what an acceptable range of outcomes might be. Then, again, after mediation, the woman should come back and have her proposed agreement reviewed by an attorney before signing it (because, after signing, there’s really no going back). That way, the attorney can make sure the woman has read the agreement, knows what it means, and understands it—plus, the attorney can make sure that the agreement says what the woman thinks it says (you’d be surprised how often people aren’t really sure what a provision actually means). Still, mediation is a great option, and it can save you a bundle.
Do it Yourself Divorce
There are more and more resources available online every day, and some of them can actually help you get divorced on your own, without hiring an attorney. I don’t think I need to tell you that removing the attorney from the equation can save a LOT of money!
Of course, there are risks involved. Without hiring an attorney, you give up the advice and guidance of someone (with a lot of experience, I might add) whose responsibility is to look out for you. Not only that, but when you find “help” online, you have to place a lot of trust in it. How do you know that your source (when it’s just a nameless, faceless internet source) is credible? Timely? Virginia specific? There can be a lot of problems, and you don’t want to screw up with something as important as your divorce.
You can hire an attorney, of course. Lots of people do. I’m an attorney, so I know how valuable having the help of a licensed, experienced Virginia attorney can be. But the thing that most attorneys won’t tell you is that you CAN do it without one. If you haven’t given it a thought, maybe now is a good time, especially if saving money is your number 1 objective.
6. Not thinking about what happens after divorce
Just because your final divorce decree has been entered doesn’t mean that you’re done. Not so fast! Though you’ve accomplished a lot (and should be really pleased with yourself!), to truly protect yourself there are a couple more steps you should follow.
• Update your will
• Update health care proxy or power of attorney documents
• Transfer titles or refinance any jointly owned real estate, cars, or investment accounts
• Get a QDRO (qualified domestic relations order) in place to roll over your tax deferred retirement accounts into a different account (in your sole name) without penalty
Avoiding these 6 big money mistakes in divorce can help you make sure that your divorce runs smoothly, and that you have everything you need to rebuild your life post-divorce. And what could be more important? Saving money now can have a dramatic impact on your future. Don’t get so caught up now that you spend more on your divorce than you need to! That way, if anyone tries to joke with you by asking why divorce is so expensive, you can tell them, “Mine wasn’t!”
For more information about the divorce process or to schedule an appointment with one of our Virginia divorce attorneys, give our office a call at (757) 425-5200.