Most couples have life-long expectations when they get married, but statistically, about 50% of all marriages in the United States end in divorce or separation. Going through the divorce process is usually tricky, regardless of how peaceful the break-up seems on the surface. At the same time, there are many difficult decisions to be made, such as child support, custody, and dividing property. One of the biggest challenges is how to manage your finances effectively.
Initially, in the heat of the divorce moment, wisely managing your finances seems like an impossible task, but it's not as challenging as it appears if you educate yourself. How long it will take to figure out financial settlements in a divorce will vary depending on the circumstances. Still, you should need to know that negotiation and compromise are crucial in any divorce.
If you cannot reach a mutual agreement with your spouse on the financial issues, you are forcing litigation in a family court where a judge is forced to make the decisions for you. This frequently does not result in what you were expecting. To properly sort out your finances during a divorce, there are several considerations to keep in mind, such as the following:
- What is in the best interest of your children?
- Did you sign a prenuptial agreement?
- Should you try divorce mediation first?
- Do you need to hire a divorce lawyer now?
- Have you updated your joint bank accounts?
- Have you collected essential documents?
- How can you divide the community and separate property?
- Who gets to remain living in your marital home?
Let's face the reality that no marriage counseling is sufficient to avoid divorce for some couples. It's usually challenging, emotionally, and financially. This means fairly separating a couple's finances can be an ugly process long before you get to a place where a child support award is determined. In other words, you need to prepare your finances for days ahead.
Every divorce is unique; meaning advice should come from experts who are familiar with the specific details of your case. Our California divorce and family law attorneys will provide some general tips below to help you make the right financial decisions.
Start Preparing a Budget
Once you know a divorce will occur, you would be wise to track your income and expenses. This will assist your divorce lawyer in deciding how to:
- approach dividing assets and debts with your spouse,
- whether to pursue spousal and child support, and
- will also help you prepare a budget after the divorce is finalized.
If you have records from prior regular billing and bank statements, then be sure to gather save them. If you didn't save them, you should start now and create a list of household expenses, mortgage payments, car payments, credit cards, insurance, maintenance, transportation costs, food, entertainment, child care, and other costs.
You can use all this information to estimate prior expenses and calculate future costs. Other costs are usually not included in regular expenses, such as the one-time cost of a new refrigerator, washer/dryer, annual vacation, and birthday and Christmas gifts. You can use the costs in previous years as a guide, but you should always keep in mind that circumstances change regularly. For instance, children usually have some expenses on after-school activities, and at some point, college tuition could become a factor.
Start Gathering Important Documents
While you are preparing a budget to plan for your divorce, you would also be wise to start gathering essential documents simultaneously. Your financial records usually tell an accurate story about your finances during the marriage.
Gathering documentation can be challenging, time-consuming, and frustrating, but it's essential in California divorce proceedings. In most marriages, you and your spouse will share accounts, commonly called a joint account. Some of the crucial documents that you should start gathering include the following:
- Checking and savings account statements,
- Retirement and Investment statements,
- Assets and debts documentation,
- Mortgage statements and property deeds,
- Car loan statements and titles,
- Credit card statements,
- Personal loans,
- Proof of separate property before marriage,
- Inheritance or gifts,
- Any prenuptial agreement,
- You and your spouse's income to calculate support, pay stubs
- Proof on income, such as W-2, 1099, tax returns for three years.
- Child's birth certificate and social security number,
- Child's school and education records,
- Marriage certificate,
- Proof of residency, such as utility bills
You should list the assets and debts acquired during the marriage and what was acquired before marriage. This is known as community and separate property in California and is crucial for property division. If you and your spouse are not on friendly terms and one controlled the household finances during the marriage, they may not want to release some documents unless they are legally forced to release them by the court.
Conservatively Spend and Save Money
When getting a divorce and determining how to handle your household finances best, you should avoid making big financial decisions. In other words, be very conservative. The upcoming divorce proceedings will determine your primary financial changes.
Many spouses want to get a head start on their new life, such as making modifications to a life insurance policy beneficiary, but the wise choice is to wait. Any changes to a beneficiary, retirement account, and wills are likely to be decided during the legal divorce process. If you attempt to make changes before divorce, the judge could view that as tampering and award your spouse.
If you have already filed for a divorce, making these types of critical financial changes without a California family court approving it, then you might face criminal contempt charges. Don't do it. When in doubt, ask your family law attorney for guidance. When you get a divorce, joint finances can become a sensitive subject. Any appearance of attempting to drain joint bank accounts will typically come back to haunt you later in court. Again, don't do it.
Dividing assets and debts in a divorce are crucial in a divorce settlement. Still, you must refrain from spending more significantly than usual amounts during the months before divorce. You could regret it later. Simply put, it would be wise to keep financial issues with your spouse transparent at this time.
It would help if you normally continued to use your bank accounts, but spending conservatively during divorce is the best option. Again, when in doubt about spending, ask your divorce lawyer for some advice until it's finalized. In some cases, a legal separation might be the best option. Whether your divorce is on friendly terms or challenging, an attorney can help you sort through and prioritize the financial issues. You could even seek advice from a certified divorce financial analyst.
What Are Some Financial Mistakes to Avoid in a Divorce Settlement?
One of the mistakes you can make when getting a divorce is not making any attempt to learn about your finances while married. Often, one spouse handled all the household financial decisions in many marriages, including paying all the bills.
Suppose you don't have any information about your and your spouse's income and assets. In that case, you should expect your spouse to take advantage of the situation when it's time to start making decisions in your divorce settlement negotiations. Here are some common financial mistakes to avoid:
- Retaining an overly aggressive lawyer to punish your spouse,
- Rushing through the divorce process to get it behind you,
- Handing your divorce on your own without legal guidance,
- Failing to put the best interest of your children as a top priority,
- Refusal to even consider negotiation, arbitration, or mediation,
- Failing to think long-term about child and spousal support,
- Emotional attachment to certain assets in negotiation,
- Underestimating your total monthly expenses,
- Disregarding tax issues in a divorce settlement,
- Taking too much responsibility for marital debts,
- Not recognizing your share of retirement assets,
- Assuming the division of property will always be equal.
Consult with a California Divorce Lawyer for Help
Whether your divorce is on friendly terms or adversarial, a family law lawyer can help you through this challenging time and advise handling finances. Our Certified Family Law Specialist can guide you through the California divorce process and review the effect on your financial health.
Furman & Zavatsky are Los Angeles divorce and family law lawyers representing people throughout Southern California. You can reach our San Fernando Valley office for a free case evaluation by calling (818) 528-3471 or filling out our contact form.