Allworth Co-CEO Scott Hanson shares four of the biggest mistakes he's seen divorcing couples make over the years.
When it comes to divorce and money, it’s usually what you don’t do - not getting everything in writing, not understanding your options, not hiring an attorney, not working to remain civil - that ends up costing you the most money, heartache, and regret down the line.
Right up front, let me emphasize that I am not a divorce attorney. But after 30 years of advising, I have seen virtually every type of dissolution there is (from amicable to scorched earth nuclear) up close.
With that in mind, what this column should do is help alert you to some of the things you must do to protect yourself and your spouse and children during the process.
Since virtually everyone reading this has been directly impacted by divorce, and even though this article is a warning, here’s a hopeful reminder: Once you’re too far down the road, and securely in the clutches of its legal and logistical talons, it can be extremely difficult for most spouses to change course and work together (during the process) for the common good – that is, until you’ve unnecessarily spent a lot of time and money and finally agree to mediation – which is something that people often realize too late was actually there all along.
So, simplistic as it may sound, when dealing with something so fraught with bitterness and heavy baggage as the divorce process, one way to avoid all-out war is to try, try, and try again to communicate openly and honestly with the very person you probably feel more contempt for than you’ve ever felt for another human being in your entire life.
Simply, I’m here to tell you that, in 75% of the divorces I’ve seen, the terrible feelings fade. Some divorced couples end up eventually being close friends. That’s because most people, when given time and distance, move-on and even forgive.
Here are four financial mistakes people make when deciding to divorce.
This is especially true for those people who let their spouse manage the money and make the big financial decisions.
If divorce seems inevitable, and you don’t have a clear picture of your financial situation, gathering these essential records and documents should be your biggest priority:
Make lists and even take photos of every piece of property and note whether that property or asset is communal (acquired during the marriage) or personal.
This is a big one that sneaks up on a lot of people, especially with shared custody of children. Suddenly, you are paying for things such as utilities, insurance, supplies, clubs, teams, pet care, and food that you used to share. Running a household on your own, with a few pets and part-or-full-time custody of the children, can cost about as much as doing it with a partner.
The only difference? You’re financially on your own.
Anyone who has ever made the decision to leave the house of their dreams knows how painful it is. But do you know what’s even worse? Being forced to move because you fought to stay in the family home, only to realize too late that you can’t afford it.
The same goes for cars, second homes, and time shares.
No one wants their standard of living to ever decline, but sometimes you must step back to move forward.
This applies even if you’re due a monthly alimony payment, because owning a home, especially one that housed an entire family, is expensive and time consuming.
Then there’s the emotional component. The house may feel oppressively empty after a divorce.
My experience has been, unless you can easily afford to stay put and you know you can adapt to the quiet when the kids are away, while perhaps more difficult in the short run, downsizing and starting over is often the more prudent choice financially and can be emotionally easier over the long haul.
I don’t like this section, either. In the midst of the heartache of a pending divorce, and all the reasons that go into the split, there’s the added layer of searching for hidden money that may or may not actually exist.
If you’ve asked your spouse for clarity, and you are in the unfortunate position of suspecting that he or she may be hiding assets, there’s no easy or comfortable way to approach this.
First, I am not trying to sow doubt where none should exist. And, yes, I’ve seen relationships where the couple bent over backwards to be transparent. But I’ve also seen the opposite, and while sad, in the end, you’ve got to protect your interests.
Let’s put it this way: You’ll probably be sorry if you don’t.
While not definitive, here are some things that would make me concerned if they happened during the process of preparing for divorce.
When it comes to the possibility of hidden assets, while I sincerely hope it never gets to this point, should any of the above occur, you need to speak to your spouse, and if the answers aren’t clear, or you truly suspect they are hiding money, then you need to speak to the judge, who may deem it necessary to issue an order to prohibit the sale or transfer of assets.
Obviously, divorce is difficult, expensive, and stressful. It’s also extremely common and, for many couples, the only reasonable path forward.
And, while there are certainly dozens of other things to consider – such as the division of debts, closing all joint credit accounts, understanding that the IRS, as well as most creditors, are going to hold you both accountable for debt and taxes accrued while you are still legally married – the above could help you better prepare to limit the pain and logistics that can seemingly drag on forever at the end of a marriage.