Avoid Excess Costs in Divorce

When considering divorce, the first professional that most people turn to is an attorney. Of course, attorneys are going to give you legal advice. However, if your situation includes property, investments, retirement accounts and/or child support, you would be wise to first meet with a CPA who has financial planning experience.

Money is a major factor in divorce settlement arguments and agreements. While family law attorneys have experience dealing with the legal issues of property division, unless the attorney is also a CPA, any financial planner CPA will know more about the nuances of financial and tax issues that can pop up during and after your divorce.

Know What You Don’t Know

A common mistake people make in divorces is assuming they know all the financial issues. Most people don’t understand the complexities buried in the act of dividing property in a divorce. I have listened to many stories of financial disappointment resulting from divorce. The majority of these problems could have been avoided with expert financial advice at the beginning of and throughout the process. These stories always sadden me because I think a broken marriage doesn’t have to ruin the chance for a comfortable retirement.

When you meet with a CPA before you hire your attorney, you have the opportunity to learn what your divorce financial gotcha’s might be. A CPA can explain where you and your spouse stand in a financial sense. There are financial and tax nuances of property unbundling and dividing investments. While you are not taxed on the division of property, you can be taxed on actions taken after your divorce regarding the property. Knowing these details early on helps both spouses make informed decisions.

Ask the CPA for a professional opinion of the attorneys you are considering and ask for suggestions. Probe for the pros and cons. CPAs are in the position to have a point of view that comes from a different place than that of your friends.

Inquire about the financial effects of the various divorce processes. Some divorces are best resolved at the courthouse. Factors that drive the choice of divorce option include the stubbornness of one or both parties and their lawyers, the existence of an emergency or family violence, the viciousness of the dispute, or other strategic factors. The best dispute resolution option depends upon the individual facts, finances, goals and personalities involved.
Since most divorce cases usually settle outside the courtroom, many times it will make more sense to use a settlement process rather than a litigation process to resolve the case. The whole litigation process, in some fashion, is arranged in and around preparing for a trial that, in most situations, does not ultimately occur. On the other hand, the collaborative law process focuses solely on settlement. It is designed to increase the chances that the couple will reach a settlement and settle in a way that is less destructive financially and emotionally to the couple and their children.
Armed with greater knowledge, your divorce can be more cost effective. You are better prepared to understand how your financial concerns will be affected by the legal process and strategies of the divorce.

Know Your Financial Options

While learning what you don’t know in the beginning is crucial, understanding the financial implications of your various settlement options is also important. Frequently in negotiations a settlement option that you have not considered will be tossed your way. If the option comes in a letter, you can check in with your CPA financial advisor to advise you of the potential ramifications.

It is important to understand your property division options and your post-divorce cash flow needs and how they intersect. You need this information at your fingertips if you end up in mediation. Decisions are made quickly in mediations and the agreements are binding – you cannot change them the next day, even if you have buyer’s remorse.

To avoid expensive mistakes, meet with your CPA financial advisor again once the divorce gets under way. Brainstorm the possible settlement tradeoffs that are now apparent. Prepare yourself about the costs and future financial risks of making certain concessions to reach an agreement.

After the Divorce

On every case, I recommend my clients hire a CPA to prepare their income tax returns for the year of and the year after the divorce. There can be unique tax issues related toproperty division even though the division itself is not taxed. These days, many couples divide a loss carry forward. You will want to get that correctly handled on your first tax returns right after the divorce.

With all that said, divorces are expensive. Consulting with a CPA financial planner from the beginning and throughout your case can help both spouses enjoy greater long term financial security in your separate lives, and save money in the long run.