Few couples begin their marriage setting aside money to pay for their divorce. If you aren’t one of them, here are some tips to get a jump on the financial areas of an impending divorce.
1. Fast, Effective Divorce
Divorce methods range from fast & cheap to slow & expensive. The least expensive and quickest way is to strike effective agreements with your spouse and hire an attorney to write it up. Other options vary in speed and cost. A traditional litigated divorce ending in trial is the most drawn-out and expensive of options. Collaborative law divorce has been around for several years but is new to Brazos Valley. There are a few factors that affect the velocity of a collaborative divorce.
Communication is the key component to divorce expense.
An imbalance of financial knowledge can slow down the divorce. Working with a financial advisor can speed up that learning curve.
This process stands on the principles of transparency and honesty. The professionals will keep the process honest even if one spouse is not.
If the property is complex, such as family limited partnerships, family trusts, or a family business, the process will provide flexible solutions that are not available in a traditional litigated divorce.
You won’t be required to attend hearings in court. All progress is made in private meetings that are scheduled to your calendar.
For couples with children, an effective divorce considers future parenting questions. Local collaborative law attorney Shane Stibora says, “People traditionally think of a divorce as dividing the marital assets and child support, but these do not encompass the complexities of today’s families. When do kids get a vehicle? Cell phones? Facebook? Twitter? Who pays for college? Grad School? The collaborative process can help the couple find solutions to these parenting concerns.”
For more information, go to www.collablawtexas.com.
2. Make a List
When facing divorce, the first financial thing to do is to create a list of what you own and what you owe –an inventory. Group the list into categories such as real estate, bank accounts, investments, retirement accounts, vehicles, other property and debts. Do not include household and personal items unless they are valuable.
Assemble documents that show the values for items on your list. You can find vehicle values at Kelley Blue Book. Real estate property values can be estimated with information from your county appraisal district. The values of most other accounts can be found on the most recent statements. Businesses and pensions are not easily valued. You will need experts to help with those.
3. Make Another List
Your next financial step is to get a reality grip on your living expenses. Understand your family’s current living expenses. Knowing your past expenses helps you move toward your post divorce cash flow.
Don’t guess. Years of experience in this business has taught me that people who estimate or short cut this process end up with a budget number that is about 50% of their true expenses. Months after your divorce you could be in for a nasty surprise when you realize your budget wasn’t realistic.
Break it Up. Separate your family’s expenses into three budgets: yours, your spouse’s and your children’s expenses. Then adjust the expenses for anticipated post-divorce lifestyles. This is important for cash flow planning and for agreeing on child support. In collaborative law cases, couples look at what the children actually cost and agree on how to divide the responsibility.
4. Alimony vs. Child Support
A frequent misconception is that child support is tax deductible. Alimony is tax deductible to the payer and taxable to the recipient. Child support is neither. Determining whether payments are alimony or child support requires more than simply stating this in the divorce papers. You must meet the IRS rules that you can find in IRS Publication 504 “Divorced and Separated Individuals”. If alimony doesn’t comply with these rules, alimony recapture is possible, which triggers income tax on part of the alimony already paid. This is not a do-it-yourself project; consult a CPA to review your proposed settlement.
Divorce is a very difficult decision. Choose divorce only after counseling and serious personal reflection of the impact on your family. If it is the most reasonable step for you, immediately begin to educate yourself on your financial issues.