Surviving Financially During and After a Divorce

Divorce usually means splitting up households. Money has to be stretched to support two residences, two cars, two sets of bills, which inevitably lowers the standard of living for both parties. The key to success is to be realistic. It will save you unnecessary disappointments and wrongly chosen paths, which could end up costing you more attorney fees. 

1) The first rule of a successful split is to establish a realistic budget based on post-separation income from all sources, including child and spousal support. A budget must meet needs not wants and be detailed. Child and spousal support are temporary and budgets must take that into consideration. A budget should be prepared by reviewing your bank/credit card statements; and being honest with yourself. Overspending and failure to stick to budgets are sometimes problems that contribute to the divorce. So, be brutally honest with yourself. By reviewing your spending, you will be able to notice trends such as marital standard of living and establish future needs for support purposes. Work on your budget over several days and go over it with a friend before you show it to your lawyer.

2) The second rule is to realistically assess your biggest asset or liability, which is the house. The usual options for dividing the house include buying one of the spouses out by either refinancing with a cash out or usually separate property funds, trading assets (if other large assets exist-usually retirement), or selling the house and splitting the equity.   If you want to keep the house, you must do a realistic assessment of whether you can afford to 1) buy the other spouse out and 2) keep the house after the buy out. It is a good idea to talk to a financial advisor specializing in divorces and visit your local bank/broker to see if you can pre-qualify. If you are not buying out the other spouse with cash, reviewing other assets is crucial. Trading assets requires very careful analysis to ensure that you are making a good deal. Not only the asset has to be assessed but also life without that asset. For example, if you are trading retirement, you must have a good projection of life in the future without that asset. Again, talking with a financial divorce specialist can be a lifesaver.

If your house is upside down, there are some crucial questions to ask yourself. The first one is who is responsible for making up the difference between sale price and amount owed to the bank. The second one is if you keep the house, will the other spouse be compensated. And of course, you have to look at where the money will come from to do the above. 

If your house is upside down:

  • you can sell the house at a loss and share the loss with your spouse
  • agree to rent the house to a third party until the market improves
  • agree to rent the the house to the spouse that stays in the house 
  • agree to alternate living in the house (i.e. birdnesting)
  • short sale, foreclosure or bankruptcy 

3) The third rule is to have a good understanding of all your assets and liabilities and how they will impact your life down the line. Don't just look at the property worksheet's bottom line. Understand how that bottom line was created and of what asset it is comprised. Projections into the future will allow you to enter into a good settlement. If you don't settle, projections will assist the judge into dividing the assets and liabilities with full understanding of the interplay with support and division. 

4) The fourth rule is to know and understand the tax impact. Look at after-tax value of an asset before accepting a settlement. A checking account with $100,000 is not the same as $100,000 IRA account. 

5) Hiring a good divorce attorney and a Certified Divorce Financial Analyst will save you money. 

Preparation and realistic approach will help you not only survive your divorce but thrive and create financial freedom after your divorce.