It’s no secret that a divorce is expensive. As for how much divorce will cost you, it’s hard to estimate just how much you stand to lose since costs go far beyond hiring an attorney and can affect everything from your mortgage payments to your utilities and insurance.
But one thing is certain: Everyone emerges from a divorce financially banged up. Ideally, both of your pocketbooks should take an equal hit. With that in mind, here are 12 steps to take as you and your spouse begin splitting up assets.
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1. Learn how much money you have.
Even if you don’t think you’re rich, you may have more assets than you realize, and you can’t protect what you don’t know is there.
Holly Davis, a family law attorney and partner with Kirker Davis, a law firm in Austin, Texas, says the first thing she recommends to anyone getting divorced is to find out what money you and your partner have.
“This means knowing the balance of everyone’s 401(k), savings plan, credit card bills, 529 accounts, everything,” Davis says. “When you know the grand total of what you own, you can then start forming an opinion about what you own and what could possibly be your financial future upon a divorce.”
2. Don’t hide money.
Hiding money may be tempting if you feel your spouse isn’t trustworthy, but don’t do it, urges Damian Turco, a family law and divorce attorney who owns and manages Turco Legal PC, a law firm with four offices in Massachusetts. “Hiding money in anticipation of a divorce is a generally terrible strategic mistake and may result in an escalation of contentiousness, legal fees and loss of credibility with the most important person in your divorce: the judge,” he says.
That doesn’t mean you shouldn’t take steps to preserve your marital assets and income, Turco adds. But you should take those steps out in the open, he says.
3. Separate your bank accounts.
If you don’t have your own checking and savings account, get them now. “Start working with your spouse to separate bank accounts,” Turco says. “If all your money is in a joint account, you may be concerned that the other spouse will abruptly withdraw all of it. That’s a real risk and happens, although the judge won’t be happy with it unless there’s a legitimate reason.”
If you worry that telling your ex you want separate accounts could mean you end up with no money, Turco says you may want to withdraw half the money into an individual account. But immediately notify your soon-to-be ex about what you’ve done. Again, be transparent.
4. Create an emergency fund.
If you’ve opened a savings account, you can use that as your emergency fund. Or if you prefer, open a second savings account just for emergencies.
“In case you ever have to use it, you should have a savings account that is an emergency fund, a legal fund or rainy-day fund that you can access and that cannot be touched by anyone else,” Davis says.
An emergency fund is a good idea even if you’re happily married, Davis adds. She also stresses that you shouldn’t keep your new account a secret. But you’ll be doing yourself a favor by putting away some funds, just in case.
“It’s always a good feeling to know that you have money you can access if need be, or potential lines of credit, in the event that the majority of your assets are held only in the name of your other spouse,” she says.
5. Hire professionals to help you.
That might mean hiring a divorce attorney, but it might also mean instead hiring a mediator. That’s somebody who represents you and your soon-to-be ex. A mediator is there to help you two come to agreements that you both can live with.
If you are sending attorneys after each other, you may want to hire a forensic accountant firm to work for you. That’s when you have high-level professionals poring through you and your partner’s portfolios and looking to see if any money is being hidden from you. It’s expensive, and most couples are not likely to need to do this.
But the larger point is that if you want to save money in a divorce, you may have to spend some. And because we’re talking about possibly the rest of your life, you really do want to make sure that you settle your financial affairs in a way that is fair to both of you.
And if you and your partner divorce or dissolve your marriage yourselves, without any professional help, you or your partner could unintentionally make a mistake that is costly to one or both you.
Hiring a professional is a good idea to help both of you avoid financial mistakes.
6. Make sure the paperwork is filled out correctly.
The best way to make sure the paperwork is filled out properly is to make sure you hire competent professionals, such as a divorce attorney or divorce coach.
But as an example of what can go wrong, if you are splitting a retirement or pension plan, you will probably need to file a QDRO with the courts. (A QDRO is an abbreviation for qualified domestic relations order, and it requires part of a retirement plan to be assigned or paid to another person, like an ex-spouse.) That’s something best left to an attorney.
If you file it incorrectly, you could find that you don’t get your half of the retirement accounts or pension plan, even if you’re legally entitled to it.
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7. If you’re relying on support, the payer should have insurance.
Ideally, if your ex is making alimony or child support payments, he or she should have a really good life insurance policy. If something happens to your ex, you and your kids could be in real trouble.
Ideally, your ex will also have disability insurance. If your ex can’t work, and you and your kids are depending on his or her salary, you’re going to have a lot of problems. And so will your ex. The disability insurance protects all of you.
8. Think about your own insurance.
Do you have life insurance? Is your soon-to-be ex a beneficiary?
John Mantia, co-founder and director of finance at PARCO, a retirement planning firm in the District of Columbia, says you should probably update your beneficiaries from your spouse to someone else, like your kids, a sibling or your parents.
“We have seen it happen many times where clients forget to change their beneficiary forms, they die and then their family learns that an ex-spouse gets a lot of benefits that otherwise would not have gone to them,” Mantia says.
9. Consider taxes.
Olivia Summerhill, a divorce money consultant and founder of Summerhill Wealth Management who works with affluent women, recommends the following as you split up wealth:
“You need to make sure you are not taking the assets that have not been taxed while the significant other gets the tax-free assets,” Summerhill says.
She offers an example of a husband receiving $875,000 in a 401(k) retirement account while the wife received $875,000 from money in a checking account and at a brokerage. It may sound fair at first glance, but it isn’t. “The husband in this scenario is going to have to pay taxes if he withdraws the money, while the wife would not,” Summerhill says.
10. Remember the ‘extras’ in child support.
If you’re going to receive child support, “make sure you add in the extracurricular activities such as camp and soccer gear,” advises Summerhill. “The little purchases and big purchases add up, and you do not want to go back to court post-divorce and try to get the costs covered. These small things to consider will protect you from the potential extra expenses.”
Of course, a good divorce attorney will also be thinking ahead on this — and hopefully both parents will be in agreement that a child’s expenses aren’t static. A child’s needs and interests are always evolving, and, of course, you also need to think about paying for college. So you don’t want to underestimate child support.
11. Don’t let the house cloud your judgment.
Many people get emotionally attached to their home, so it’s understandable if you want it in a divorce. If your spouse doesn’t want the house, even better. Or so you would think.
You could “win” the house and later feel like you lost. “The cost of the upkeep and yearly mortgage payments may not be as beneficial as getting a brokerage asset in the divorce settlement,” Summerhill says.
Downsizing to a more affordable home — but staying in the same school district — may be the better way to go, she says.
12. Do not go to war.
That is, don’t hire divorce attorneys and have them hash everything out and take each other to court, if you can help it. You’ll both go broke.
Even the divorce attorneys often advise against this.
“Generally, the mediation process will be much cheaper than litigating a case at trial, and it will give the parties a lot more leeway for creativity in resolving the unique issues in their cases than the judge would have at trial,” says Russell Frank, a marital and family law attorney based out of Orlando. He is also a Florida Supreme Court certified family mediator.
Having that aforementioned leeway should be very important to you, according to Frank.
“In my experience, leaving family-related decisions to a judge can be very risky, as the judge will only hear evidence for a matter of hours — and then make decisions that could affect you, your family and your children for many years to come,” Frank says.
Frank points out that, generally, divorce court cases take far longer to work out than mediation. “Most contested and litigated divorce cases can last anywhere from nine to 18 months, if not longer,” he says.
This doesn’t mean you shouldn’t work with a divorce attorney and immediately run to a mediator. An attorney can still help you with paperwork and offer advice, which can be very valuable during any part of the divorce timeline but especially when you’re still processing that your marriage is ending.
And everybody’s marriage situation is different. You may be in a scenario where one of you wants a divorce and the other doesn’t. Your marriage might be one of those where neither of you trusts the other at all, or one of you is intimidated by the other, and there’s no way you can ever harmoniously work out the details of ending your marriage. Divorce attorneys and court may be the only option.
But it should be thought of as the last resort, especially if you and your partner generally like each other but simply realize that you aren’t compatible as spouses.
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Some Best Practices When It Comes to Divorce and Money
Trying to figure out how to protect assets from divorce? Here are some suggestions from Penelope Hefner, principal and managing attorney at Sodoma Law, a family law, divorce and estate planning firm with several offices in North and South Carolina.
Be transparent. This falls under the category of treating your partner the way you would like to be treated.
“Be open to sharing all information and documents, if you expect the other side to do the same,” Hefner says.
Stick to the facts. Divorce is emotional, but try to not get too emotional when trying to figure out your and your partner’s exit strategy.
“If you disagree with a point, use fact-based responses over emotional ones,” Hefner recommends. “For example, talk about what schedule would work best for your kids and focus on the needs of your kids, instead of saying things about the other person and their inability to handle more time with the kids.”
Consider hiring a divorce coach. Hefner says that a divorce coach can help you process what is happening and offer advice on reacting strategically instead of lashing out or shutting down.
Embrace technology. “Make use of apps to better communicate about child-related things such as calendars and expenses,” Hefner says.
Stay focused. “Be clear on what your goals are and let go of the rest,” Hefner says. “Your attorney can help you determine your primary goals and do a cost-benefit analysis for smaller issues. For example, is fighting about the small HSA account worth it? Maybe, but maybe not.”
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12 Steps to Protect Your Money in Divorce originally appeared on usnews.com
Update 03/20/23: This story was published at an earlier date and has been updated with new information.
