Disagreements over family finances is one of the leading causes of divorce in the United States, but no matter what the cause of a breakup, divorce can be a very financially costly event for all parties involved. Unfortunately, divorce by its very nature is not something people can approach calmly or dispassionately and it is hard to keep your financial head when you are in the midst of such an emotional upheaval. If you are in the midst of a divorce, or heading towards one soon, perhaps some of the tips and hints below may be helpful.
Before we get to the good stuff, I have an administrative note: I recently revamped the mailing list for announcing these diaries. If you want to get an email announcement each week when a new diary is posted, send me email: frugalfridays (at) gmail.com and I'll add you to the list. If you didn't get an email this week, you are not on the current list.
Resign Yourself to Getting an Unfair Deal
It is impossible to divide a single household into two separate and functioning households and not have each party in the end feel that the division is unfair. You are going to have to give up somethings you "shouldn't" have to and pay for other things that may feel grossly unfair in the end. I'm sure it will be little consolation, but rest assured, your ex will feel just as put upon. It's a fact that in our culture, we often assign an emotional value to money above and beyond the intrinsic purchasing power inherent in the cash. Try to resist this interpretation as much as possible. Try to keep your eye on the long term goal and not get caught up in the emotional attachment you may have to the things you are losing or the money you are paying. No matter how strong your desire for revenge may be, just keep reminding yourself that cutting off your nose to spite your face really, really hurts.
Build Yourself a Safety Net
Before you file for divorce, before you start working at disolving your joint finances, you should start to build an independent financial identity. What this means is that you should start by opening a bank account and a credit card in your own name. Let me make one thing really clear:
The purpose of these accounts is NOT to hide assets from your soon to be ex. You should never try to hide these accounts or deny their existence. The purpose is just so that you have some financial resources under your own control. You will need these accounts once you shut down your joint accounts and so you may as well open them sooner rather than later.
Speaking of shutting down joint accounts, you should probably start that process as soon as you have made the decision to separate. The sooner you can start separating your assets, the easier it will be in the long run.
Try to Minimize the Legal Wrangling
The more you can do on your without involving lawyers or the legal system, the cheaper it will be for all parties in the end. If you think that you and your spouse can both maintain at least a semblence of reasonableness throughout this process, you should probably try to negotiate your divorce with a mediator or an arbitrator. Additionally, there is a new process called collaborative divorce where each party is represented by a lawyer, but all agree to settle this issue without going to court and all agree to share information to work towards a speedy settlement. That said, there are certain times where you should definitely hire a lawyer, even knowing the additional costs you may incur. In cases where where there is abuse, where your spouse is a bully or extremely dishonest, or if your spouse has already retained a lawyer, you should retain your own counsel as well. If you can't afford an attorney, try calling the local legal aid office. They may have free or low cost help available for you. To educate yourself on the process and to get answers to many questions, I would first start with the Nolo Press site How To Divorce.
Things to Consider When Splitting the Finances
When you are trying to divide up your current assets and to determine future needs, here are some specific financial issues that sometimes get overlooked:
- Life Insurance: If you have been jointly contributing to the life insurance policies for one or both of you, these policies should probably be considered as joint assets. Be sure to include them in the settlement process and then change the beneficiaries accordingly. If you have life insurance provided by your employer, this may or may not be a joint asset, but make sure to change the beneficiary in either case.
- Health Insurance: One or both of you may need to replace your health insurance policy once you are no longer eligible to be covered together. You may be eligible for temporary coverage under COBRA if you were previously covered by your ex's employer based policy.
- Credit Cards Debt: If you divide your credit card debt, you should try to remove each other from the accounts that you are each no longer liable for. If you can't, then be aware that your future credit rating can be damaged if your ex stops making payments on your joint accounts.
- Retirement accounts: These assets are usually divided as a matter of course in the settlement process but make sure to change the beneficiary on all of your accounts to reflect your new wishes.
- Wills and Trusts: Be sure to update your will and any trusts you may have, including your durable power of attorney for healthcare.
- Education and Job training: If one of you has not worked in a long time, he or she may require some assistance in re-entering the workforce. The cost of this training should probably be a shared burden.
- Child Care and Other Household Help: You may find that you are going to have to hire someone to perform household tasks one or the other of you used to be able to manage.
- Teenaged Children: Even if your children are young now, you will want to consider the costs that they will incur in later years: computers, cell phones, cars and college prep expenses can all add up and that doesn't even begin to discuss all the expenses of college itself.
Further Resources:
Here are some more articles I've found that have helpful information on divorce and how it can affect your finances:
- The New York Times article Financial Decisions to Make as You Divorce was the inspiration for me today, and as a result some of it may seem familiar after reading the above.
- Nolo Press is great resource for both free information over the web as well as books and software you can purchase (or may find in your local library). They provide legal information on a variety of topics, including divorce and family law.
- 10 steps to a money-smart divorce from Bankrate.com is a nice list of steps to take before during and after divorce. Sometimes you just need a simple list of steps to follow and this is a great place to start. Additionally, their list of The do's and don'ts of getting divorced has some helpful hints you should keep in mind while going through the process.
- The web site Woman's Divorce has a lot of good resources and information. Much of it would be helpful for men as well.
- How Will My Divorce Affect My Credit? addresses specific credit related issues that can arise from a divorce.
- Finally, if you are looking for even more, you can lookover this list of 14 Resources on Divorce and your Finances