When you or your spouse decide to initiate a divorce, your next moves may be guided by the emotions of a decision that many would consider challenging. You may look to put physical distance between you and your spouse by moving out, or you may ask your soon-to-be ex-spouse to do so.
You may engage in many types of unhealthy behaviors in an effort to cope. These types of behaviors can cost money, and during the divorce process, money and assets are two things that you need to keep an eye on, which is why you need to be making financially smart decisions.
Hire a financial advisor
In addition to employing a family law attorney, equipped to represent your unique interests as both a man and a father, it may be beneficial for you to also call upon the efforts of a financial advisor, in order to outline the realistic financial situation that you may be facing and to outline how to recover from the financial losses that divorce creates.
A financial advisor is equipped to aid in two of the more complex areas of asset distribution: the division of retirement benefits and settlement structure in a tax-advantageous manner, according to Cordell & Cordell Co-Founder and Principal Partner Joseph E. Cordell.
By having a financial advisor present in the discussion of financial documents with your family law attorney, you are setting yourself on a better financial path heading into post-divorce life. Having a financial advisor involved in the process is a proactive step in saving money long-term.
If you own a business that you started prior to the marriage and know that there is a percentage of the business that your wife is entitled to, you can meet with a financial advisor before you meet with opposing counsel and your soon-to-be ex-spouse, in order to determine amounts beforehand.
Because these numbers were reached by an experienced financial professional, they will not only have more credit behind them, but will make the process quicker and smoother. You will be able to have a clear picture of your financial future and create a plan to help you save money moving forward.
Having a financial plan after divorce is vital to your financial well-being. One innovative way of going about this is to change the way that you go about saving money.
According to recent research published by the Association for Psychological Sciences, changing the way you think about the passing of time is crucial to changing the way you save money, especially after a divorce.
Many view time linearly: from past to present to future. In order to save, you may have to consider thinking about time cyclically. If you think about time like you do seasons of the year, each including small and large life events, the ebbs and flows of time caused 82 percent of those in the research to save more than those who viewed the passage of time linearly.
It is not just about the way you save money. After a divorce, how you spend money matters. With elements left over from the divorce, such as alimony or child support, still in play, it is important to monitor how you spend your money.
Budget your money
When you are married, you may have two incomes flowing into the household. This can create a level of financial comfort that promotes the psychological concept known as money illusion. Money illusion entails individuals having an illusory picture of their wealth and income based on nominal dollars, rather than actual terms that take into account the level of inflation in the economy.
Money illusion can reveal itself after a divorce through the form of expensive purchases, which often are shown off on social media. If your ex-spouse does this, how the money was acquired, in order to make the expensive purchase, can cause the accusation of hiding an asset to occur.
This is why it is so vital to monitor what you put onto social media. It can be a resource in educating yourself on the whereabouts of your soon-to-be ex-spouse during the process, but it also can harm your overall case, making it a decision that can cost you legally and financially.
House and mortgage
You also need to monitor the state of your house. Ideally, you would have never left your family home, because of the legal ramifications to your divorce and child custody case.
Leaving the marital home does not look good. From a legal perspective, it looks like you are abandoning the family and could cause you to lose ground in your child custody case. If you have left the family home, you can return, so long as the court has not assigned exclusive control and possession of the marital residence to your ex-spouse or an order of protection has not been filed against you.
In addition to the home and its effects on the child custody arrangement, the mortgages that the marital home has are subjected to the effects of divorce. This may force you and your soon-to-be ex-spouse to sell the marital home, in order to refurbish some of the losses taken during the divorce. You do not want to be playing “hot potato” with that solvent of an asset.
Any potential sale may not have anything to do with the losses sustained during the divorce, but rather, the mortgage payments themselves. The payments may have been manageable with two incomes coming into the household, but with only one income sustaining the financial well-being of the household, the payments may be too much.
Not only do you face ramifications from a property division and a child custody perspective, but divorce also can affect the ways your taxes shake out.
If you are selling the marital home, you need to consider the taxes levied onto the profit of the sale, the capital gains tax, as well as Internal Revenue Code 1041, or IRC 1041. The two concepts are linked. Capital gains tax includes paying taxes on the profits of selling the family home during a divorce, and IRC 1041 states that no gain or loss is recognized on a transfer of property from a spouse or a former spouse to a spouse or former spouse, if the transfer is incident to the divorce, according to the American Bar Association.
Monitoring how any potential transfer or sale of property affects your taxes is a smart financial decision and will allow you to get a better sense of where you fiscally stand before, during, and after tax season.
Monitor your credit
Whether it is a sale, a transfer of property, or a mortgage issue, all of these concepts can affect your credit, and during the divorce experience, your credit, as well as the credit of your soon-to-be ex-spouse may be examined, in an effort to analyze both of your financial whereabouts and possibly prove detrimental behavior.
During this time, a financial advisor may ask that you order credit reports and go through the process, in order to show yourself to be a financially responsible individual. Once all of your accounts and the accounts of your soon-to-be ex-spouse are out in the open, you can begin to separate them as best as you can, while freezing any joint accounts.
You also have to make sure that your soon-to-be ex-spouse is no longer listed as an authorized user of any of your accounts, so they no longer have access. Any joint loans may need to be refinanced, in order to reflect the change in income flow, and you may need to monitor the amount of debt that you take on during the divorce.
This is why the assistance of both a family law attorney and a financial advisor can be so beneficial. They can help you make the best legal decisions, as well as financial ones, so that moving forward, you are in the best position possible to recover from the challenges of the divorce process.