No one says “I do” thinking they eventually won’t, but it’s an unfortunate reality that more than 50% of I-doers eventually... don’t.
Few life events are so emotionally driven as divorce, but if you get stuck in the emotional vortex, you might miss some of the vital to-dos that will help make your split as fair as possible today and as peaceful as possible in the future.
As my colleague Katie Keary, a Certified Financial Planner™ practitioner and a Certified Divorce Financial Analyst™ told me, “Working with a financial advisor as soon as possible can help you make objective decisions about your future when you may be focused primarily on the here and now.”
Further, she suggests building a team from the get-go that consists of an attorney, financial advisor, CPA and therapist with expertise in divorce. This team will be vital in helping you navigate the numerous legal, financial, tax and emotional challenges that come with separation. I know what you’re thinking--sounds expensive, right? And it may well be, but the investment today will likely pay dividends tomorrow.
If you think you’re about to go down the road to divorce, there are probably a million questions vying for priority in your mind, so let’s focus on asking the right ones, in the right order:
1) Do you and your spouse really want a divorce? Of course you do, right? That’s why you’re reading this post! But in their book, Divorce in Peace: Alternatives to War from a Judge and Lawyer, John and Laura Roach begin with this same question precisely because divorce can be so very costly, personally and financially.
“For those who are thinking about divorce because of financial, emotional, or communication problems, take a deep breath and think about what you can actually accomplish with the divorce,” they write. “The issues that will arise during the divorce process will put an even greater strain on your finances, emotions, and your ability to communicate.”
They recommend considering Cervantes’ 16th century proverb: “The worst reconciliation is better than the best divorce.”
2) What do you want the outcome of your divorce to be? This may sound like a silly question, but nobody sets out to create a messy divorce that leaves the kids scarred and both spouses embittered. Therefore, consider beginning this project by having each spouse, independently, write out what they hope the end result of the divorce will look like.
If this exercise is undertaken with a calm mind, the chances are good that the answers will resemble one another and provide the context necessary to merge them into a hopeful, best-case scenario. Then, when lawyers get involved and emotions inevitably run high, you’ll have an ideal to return to and work toward.
After addressing these big, weighty emotional decisions, divorce specialist at Buckingham Strategic Wealth, Katie Keary, recommends a series of questions that begin to bridge the divide between emotion and practicality.
3) How will you share the responsibility of caring for your children? How would you like the custody agreement to be structured? This is the most important question when kids are involved. Too often this decision becomes less about the kids and more about the parents, even if unintentionally. But could there be a better reason to keep a level head? Remember that your kids are proof that something great came from your marriage, and that how custody and co-parenting are handled will impact them for the rest of their lives.
4) Do you live in a “community property” or “common law/equitable distribution” state? How will your assets be handled accordingly? In community property states, most notably California, all assets and income are considered jointly held. Here’s a list of community property states.
5) Will you sell your primary residence or does one of you want to stay in it? If you would like to stay in the home, do you clearly understand the annual cost associated with keeping the house (mortgage, property tax, insurance, utilities, upkeep, etc.)? Most households live off 100% of their joint income in a single residence, often making it a challenge to maintain that residence on a single or reduced income, even if it would be preferable to offer some continuity for the kids.
6) What other big-ticket personal property items are important to you? Furniture? Cars? Boats? A second home? Again, sacrifices will almost certainly have to be made. Figuring out how joint assets can be divided as fairly as possible is key in divorce proceedings. Entering those tough conversations with an open and empathetic mindset is crucial.
7) How will you handle current debts and debts incurred while you are separated? Make sure not to neglect the latter, because while emotions are running especially high during separation and negotiations--and especially because of the inevitable duplication of expenses--rising debt is often an unwelcome byproduct.
8) Who will be responsible for paying the mortgage and other regular expenses (utilities, car payments, etc.)? How will you make sure the responsible party carries through on what they agree to do? Automate, automate, automate. You’re going to have enough on your mind, but articulate and clarify who’s responsible for what.
9) Who will pay for the legal fees? Will each of you be responsible for retaining and paying your own lawyer? And beware of opportunistic divorce attorneys who may not necessarily share your ideals and vision for how this should all end up.
10) How can you work together to control or minimize the cost of the divorce? Everybody will be better in the end if you’re able to have an open dialogue around this question.
11) How can you start saving money on the side to cover costs of the divorce? I know it’s going to be hard, but it’s the only way to land on your feet after the restart.
12) Will a change in employment be necessary to continue your standard of living? This may be a topic addressed down the road, but considering an adjustment to your standard of living is definitely worth thinking about. By committing your expenses and income to paper, you’ll be well set up for a clear view of what your future lifestyle can look like and should cost. Maybe no changes are necessary but if they are, knowing your burn rate early is the first step to financial success and future wellness.
With more than 50% of marriages end in divorce--and a majority of those splits cite financial disagreements as their primary cause. Focusing on these financial questions and their derivatives will almost certainly help make this difficult life transition much easier on everyone involved.
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Disclaimer: This post is written for informational purposes only and should not be considered a substitute for individualized legal and financial advice.