How to Have a Financially Responsible Divorce

A divorce is stressful on many different levels: mentally, physically, emotionally, and also, financially. The help offered by your mediator or legal advisor only extends so far. You wouldn’t think to rely on your mediator for therapy, babysitting duties, or finding a new house, right?

The typically complex situation of divorce calls for all kinds of assistance. Leaning on the comfort and wisdom of family, friends, therapists, and spiritual counselors can support you through the mental, physical, and emotional elements.

For financial matters, however, you’ll need a good, certified accountant or financial planner (CPA or CFP) to help you sift through divorce details such as assets, debts, tax liabilities, and retirement planning. With financial and legal guidance in place, you can carry out a financially responsible divorce.

Dividing Assets/Property

One of the many parts of the divorce procedure is splitting up your assets or property. Your assets include checking and savings accounts, stocks and bonds, furniture, antiques, vehicles, and housing. Start collecting copies of necessary financial statements to share with your accountant and legal counsel so that they can aid you in the right course of action involving your property.

If you and your spouse are capable of working together to divvy up assets, then a mediator can help prepare contractual agreements on the division of property. Using a mediator and keeping your divorce out of court will likely save you thousands of dollars in attorneys fees and court costs.

Interestingly, many couples can amicably agree on how things should be split, especially when using either of the following two methods when they get stuck in the process:

1. Fair Trade Swap– You can research the value of a particular item, have your CPA or CFP help you, or estimate a value and then swap with an item of similar worth (or several items adding up to it). For example, one spouse who wants the family van can have it in exchange for family antiques.
2. Sell and Split– Sell assets and equally divide the money earned. The family house, for example, may be too much upkeep and too expensive for either of you. The house could be sold, and money split evenly between you.

In cases where you and your spouse cannot compromise on your own or with a mediator, the court will determine for you. The laws of the state you live in when you file for divorce will likely play a significant role in the judge’s decision. Nine states are community property states (AZ, CA, ID, LA, NV, NM, TX, WA, WI). In these states, joint marital assets typically get split equally. All other states typically divide equitably, with the higher wage earner receiving a larger percentage of assets.

Dividing Debt and Expenses

Expenses and debt can be more complicated than dividing property. You, your spouse, and your financial planner need to determine how much is owed and to what establishments.

To start, run a credit report. The report will list all debts in your name and jointly owed together. Equifax, Experian, and TransUnion are the three credit reporting agencies to reach out to.

Next, prevent growing debt by canceling joint credit cards. Your financial planner may advise you to leave open all credit cards only in your name so that your credit score doesn’t take a big hit, but know that closing credit accounts may be in your best interest even though it lowers your credit score.

You and your spouse have a few different options when deciding how to split debt. You can:

1. Agree to Share. Sharing the debt burden takes a lot of trust in the other partner. If they stop paying, you are solely responsible.
2. Agree to Pay in Exchange for More Assets. For example, you can agree to pay off a major credit card debt if you get more proceeds from the sale of your house. The reverse of this works, too. You can give up more assets so that your spouse can pay off debts that have both your names attached to them after the divorce is final.

Tax Liabilities

Don’t overlook your tax obligations as you divide assets and debts. Doing so could place a heavier burden on your finances, costing you thousands of dollars.

Your accountant or financial planner can help you determine:

• What legal fees are tax-deductible
• How to claim head of household status on tax returns
• Deductions for child support payments
• Tax exemptions for dependents
• Tax-deductible maintenance payments
• Withdrawing retirement payments
• Ensuring the divorce settlement in case of premature disability or death, and so much more.

In addition, your accountant can review your proposed financial agreement before you sign it to make sure that its true value is understood, pointing out any long-term economic impacts to you.

Retirement Plans

Depending on the length of your marriage, you could be entitled to half of your spouse’s retirement savings. The money you get could be what you and your children need to get by. Also, think about your future retirement goals–you could be funding your retirement without help for the foreseeable future. Hire a trusted CFP or CPA to help you consider retirement withdrawals and savings during your divorce.

Put Your Financial Picture Together

As much as you can, educate yourself regarding your finances. With so much to think about concerning the intertwinings of legal and financial matters, it’s best to enlist the help of a financial advisor along with a legal professional to guide you.

When all is said and done, consider using a co-parenting app that is court-approved to help you sort, track, bill for, and pay all funds between you and your ex-spouse in an effortless manner that keeps the financial aspects of divorce recorded for use by all parties and their legal/finance team. Check out apps like Dcomply created with the divorced family in mind and make paying and requesting payments easy and fuss-free.