Financially Planning for a Divorce

Coming up Short on Cash

A particularly acrimonious divorce can cost more than $20,000. Failing to plan for the cost of the divorce can easily send you into debt and much worse off financially from the divorce.

• HOW TO AVOID
  If you see your marriage heading toward divorce, as early as possible, begin shoring up savings and alternative funding sources. Divorce itself is costly — with legal fees, professional consultants and court costs — but smart money moves and estimating your savings plan before the divorce can prevent you from ending up in the post-divorce poorhouse.

Filing Before You Formulate a Plan

Maybe you can't stand being in the same room as your spouse and jumped ship as soon as you decided you wanted a divorce. Filing those divorce papers was a huge relief. But lack of careful preparation means you'll end up reacting to divorce developments without a clear, strategic plan. There's only so much an attorney can do to help if the damage has already been done.

• HOW TO AVOID
  Understand how long and winding the road of divorce can be before you file by educating yourself about it, online or the good old-fashioned way, through books. Consult with legal and financial professionals about your situation. You need a plan, and professionals are much more well-versed with divorce issues.

Failing to Keep a Paper Trail

You might have a good argument for property division or child custody, but failing to back it up with hard documents is of little help. With inadequate proof, you'll only end up pitting your words against your spouse's.

• HOW TO AVOID
  As soon as possible, preferably before your divorce begins, obtain copies of all financial records — for both joint and separate accounts — that prove ownership and interest amounts. Include things like tax returns, credit card statements, property titles, loan documents, car registrations and investment brokerage statements.

Discounting Income Tax Changes

Forgetting to factor in taxes can result in paying more taxes or failing to fight for what you need. When it comes to the IRS, the government treats married couples and singles differently. A single person often ends up paying a higher tax rate than a married person. Or, if you end up receiving spousal support, you fail to calculate the taxes you'll pay on it and end up with less than you need.

• HOW TO AVOID
  Property division decisions should always consider the tax ramifications. Figure out the after-tax value of the disputed property. You may need to consult with a CPA to determine whether getting the brokerage account and passing up the retirement plan is a better move. A CPA can tell you whether you are better off selling the house or keeping it a few more years.

Failing to Piece Together the Big Picture

You can't argue effectively if you don't fully understand where you stand financially. You fail to properly investigate your spouse's investments and overlook assets, which means you don't get your fair share.

• HOW TO AVOID
  Make the effort to take inventory of all assets and investments. Doing so may jog your memory of your spouse's separate banking account or safe deposit box that was opened years ago. Carefully review documents — such as retirement plans and insurance policies. Even your spouse's hobby equipment may be a worthwhile asset to include in negotiations. Sometimes, engaging a forensic CPA can be helpful.

Allowing Emotions to Rule

Divorce is emotional, and there's no way around it. But letting your emotions dictate your every decision can easily result in financial decisions that exact long-term damage. Basing decisions on revenge can prolong the divorce, adding exponentially to attorneys' fees and court costs. Emotions may also push you to fight over every issue, including inconsequential ones, while your attorney charges you $5 for every minute you seethe at your spouse.

• HOW TO AVOID
  Keep your lid on your emotions and consider whether mediation can work in your situation. As much as possible, treat your divorce like a business transaction. Your attorney is not your friend. A friend doesn't bill you $300 for a tear-filled tête-à-tête. Take a step back and consider the long-term ramifications of your decisions. Consulting with professionals who can help you see beyond your emotional motivations may act as a damper on the flames of acrimony.

Neglecting Your Post-Divorce Livelihood

Focusing too much on ending your marriage leaves you vulnerable to the aftermath — how to stay afloat financially in the long term. The stress of flying solo is already hard enough without the worry of finding a job and bringing in income. If you receive spousal support, those payments may simply not be enough. Even more, your divorce agreement may require you to work.

• HOW TO AVOID
  Take on an "act, not react" attitude. Before or during your divorce, work on boosting your career or reviving it if it's been on the shelf during the years you spent raising your children. Getting a head start on this likely scenario means you've created some job security or you're that much closer to a salary raise.

Shunning Professionals

Hiring an attorney for your divorce is a given for most people. But ignoring the long-term financial benefits of other professionals who can bolster your divorce arguments can prevent you from getting the best outcome from the judge.

• HOW TO AVOID
  Ask your attorney about other professionals who can help solidify your property division and custody arguments. A forensic accountant may be useful for locating your spouse's hidden assets. A financial adviser who specializes in divorce may help you work out the best strategy.