When you divide property and income with your spouse, each of you will have only half of what you had before, or perhaps less. If you don't have your own regular income, you will need money to live on until you can get an award of alimony or until you the divorce is finalized and you have access to your share of the marital assets. Similarly, you will need to gather information and time your actions strategically.
Pitfall #1: Not Enough Cash
In divorce, everything always costs more and takes longer than you expect. Expenses will begin to mushroom as soon as the divorce process starts. If you feel a split is imminent, start stashing the funds you'll need for lawyer's fees and living expenses. The more money you can set aside before the divorce proceedings begin, the less anxiety you will face when the big day comes.
If you are afraid your husband will seize your joint savings, transfer your share to a new account. This money will still be a marital asset, but at least it will be under your control. Be aware that this act of self-protection may be perceived by your spouse as hostile and get your divorce off to a bad start. Do what you have to do to feel safe: Divorce is not about good manners, it's about survival.
If you don't already have a credit card in your own name, apply for one at your local bank. If you have shared credit cards with your spouse, close out as many as possible. If one of you continues to use any of those accounts after the split, the other is still legally responsible for the debt.
Pitfall #2: Too Little Preparation
Divorce is a long, complicated process that requires careful preparation. Don't just pack your bags, load up the kids, and drive away in a car that needs four new tires. Instead, prepare by using joint funds to undertake any necessary car repairs, to pay for necessary dental work for the children, and to buy any career clothes you will need. Otherwise, you'll be paying for all of that from your share of the bank account once you leave.
Think about the timing of the separation: Is your husband due any bonuses or other windfalls in the near future? Don't separate until after they arrive, so you can get your share. Of course, if you're the one scheduled to get the bonus, well, there's no time like the present.
Pitfall #3: No Records
The three most important words during divorce are: document, document, document. When you divorce, you must identify the assets that you and your husband have accumulated and establish their value. Even if your husband was in charge of the finances while you were married, it's now up to you to find those records. You are entitled to your share of any marital property you find, and any additional income you discover may increase the amount of earnings that are used to calculate alimony and child support.
Gather as many financial records as you can before your divorce begins. Make a clear copy of tax returns for the past three years, loan applications, wills, trusts, financial statements, banking information, credit card statements, deeds to real property, car registrations, and insurance policies. Also copy records that you can use to trace your separate property, such as from an inheritance or gift from your family. These assets will remain yours as long as you can document them.
As you are taking stock of what your family owns, carefully inventory any safe deposit boxes; track down bank and brokerage accounts, and loans to friends and family members. Also obtain copies of pay stubs, retirement and pension plan statements, and investments. Make a list of personal property, including artwork, furniture, jewelry, and computers.
If you suspect your husband is hiding cash, copies of your spouse's business records and business tax returns can be a treasure map showing you where the hidden assets are buried. It's time to play super sleuth!
Pitfall #4: Overlooking Assets
Small assets, such as frequent flyer points and vacation pay, can add up. Even if you don't want an asset, it can be used to trade for something you can use. Don't overlook hobbies or side businesses that might use expensive equipment or generate income. If you have a PHT degree (Putting Honey Through), you might be entitled to compensation for the expenses you paid to get your spouse through school.
A business is generally valued based on a combination of its net income and assets, so you may want to engage a forensic accountant to look for telltale signs of additional income or overstated expenses.
Your spouse may try to hide assets. He may collude with an employer to delay bonuses or raises, arrange a false debt repayment to a friend, or pay a salary from his business to a non-existent employee. Even if he does, don't try to hide assets yourself. You'll likely be found out and incur the wrath of both your ex and the judge. Your divorce will be more straightforward and less expensive if you tell the truth and reveal all your assets.
Pitfall #5: Ignoring Tax Consequences
Though divorce is not a taxable event you have to report on your tax return, it can still have tax consequences. If you've owned your house for a number of years, it's probably gone up in value. You are probably better off selling the house while you and your husband still own the house together, so you each can claim capital gain exclusion.
Another huge asset in most divorces are the retirement plans. Dollar for dollar, money in retirement accounts is generally worth less than money in bank accounts, since retirement money will be taxable when withdrawn.
Other assets that might have hidden tax traps are securities that are worth much more than they cost, stock options, annuities, cash value of life insurance policies, and vacation homes. Your lawyer is versed in marital law, and may not know all the ins and outs of current tax law. Your situation may require the help of an accountant to determine if you are really getting a good deal.
Pitfall #6: Not Taking an Active Role
During divorce, being uninformed can be very, very expensive. Learning as much as you can and negotiating directly with your husband, if possible, will help you recover more quickly from the divorce. That is because you will have a healthy sense of control over the process, be focused on practical things, and be working with your ex to get things done. Taking an active role in the negotiations will help you to reach a better settlement than "letting the lawyers handle it." You will have less conflict and litigation after the divorce, better compliance from your ex, and better sharing of information about the children. Don't be a passive observer of your own divorce. Your lawyer may give you legal advice, but all of the decisions are ultimately up to you.
Here are some recommendations for being active in your divorce:
Pitfall #7: Mixing Money and Emotion
During this trying time, it's easy to confuse your feelings with the facts. Try to be as dispassionate and businesslike as possible. View your lawyer as a paid professional rather than a friend or confidante. When your grief is overwhelming, go home or to a friend's house, not to your lawyer, who is billing you at an hourly rate.
Make property division decisions based on your own long-term best interests, not out of revenge. It won't make you happy to declare war on your ex. Make an effort to bring the divorce to a successful conclusion with as little rancor as possible. A nasty divorce benefits only the lawyers.
Pitfall #8: Not Fighting for What's Yours
Women tend to be supportive and sensitive to the needs of others, to build bridges, and to "make nice." These tendencies often get in our way during divorce. Divorce is about survival, not making friends. You have to insist on getting what you need and deserve. Even if you hope that you will eventually be able to reconcile with your ex, don't bend over backwards to make it happen. Stand up for yourself and get your share. If you reconcile, that's fine. If you don't, you'll still be able to take care of yourself financially.
Don't forget the four "gets" that can trap you. Fighting just to get even, giving up to get it over, being conciliatory to get him back, and trying to get your old life back. All these "gets" trap you into old ways of being, and rob you of your ability to move forward as a whole person in control.
Sometimes women don't feel entitled to a share of their husband's retirement. "He worked all those years and I didn't," one older woman told us. "Besides, he needs it because he's almost old enough for retirement, and he's been counting on that money." She was so busy focusing on his retirement, that she didn't realize that her own retirement years would be bleak, not golden, without her fair share.
Pitfall #9: Not Taking Control
Going through a divorce can sometimes make you feel like the captain of a leaky boat on stormy seas—there seems to be a new crisis at every turn. Use this time of upheaval to start taking control of your life. Vow never to worry in the dark—if you can't sleep, turn on the light, pick up a pencil and paper, and write down your worries. Then, you can go back to sleep and deal with them first thing in the morning. Listen to your lawyer, but make your own decisions. This is your divorce—so take control of the process!
Pitfall #10: Not Being Ready for the Worst
During divorce, prepare yourself mentally for the worst that can happen. How will you cope if you have to move in with your parents? If the divorce lasts for years and you lose all of your money? If your ex remarries within two weeks, moves to Tahiti, and refuses to pay any support? Face the worst so what actually happens will seem easy by comparison. Don't panic and let your fears rule your life. Face them, and take control.
There's a story about an old mule that fell into a dry well. The farmer, thinking it wasn't worth the trouble to get the mule out, decided to fill the well with dirt. As he and his farmhands shoveled dirt into the well, the mule started to panic. But rather than giving up, the mule shook off the dirt as it rained down. With each shovelful that came down, the mule shook it off and then stepped up onto the accumulating pile. "Shake it off and step up, shake it off and step up, shake it off and step up," he repeated to encourage himself. Bit by bit, step by step, he fought panic and kept on going. Eventually the old mule, exhausted but triumphant, made it to the top and walked right out of that well. The moral of the story: if you have a plan and follow it through, no matter how tough it gets, small steps combined with persistence will eventually get you out of the hole.
Pitfall #11: Not Developing a Career
Many women put their careers aside to concentrate on their families. After divorce, you will probably need to figure out a way to support yourself and your children. Divorce is an excellent time to get some career counseling at the local job center, university, or community college. There's nothing like new knowledge and a fulfilling career to bolster your self-esteem.
Pitfall #12: Not Getting Good Professional Advice
Right now, you need all the help you can get! Divorce can be very complicated, so don't try to do it all yourself. Get the best advice you can afford. Hire a lawyer who can give you excellent guidance, even if you plan to negotiate part of the divorce yourself. Engage a forensic accountant if you think there might be hidden assets. Find a good therapist to help you emotionally. Hire a financial adviser who specializes in divorce to help determine the best settlement options for you, as well as help you determine how to best invest the assets you receive in the divorce. Don't skimp now on matters that will affect the rest of your life.
This article has been excerpted from It's More Than Money: It's Your Life!:The New Money Club for Women, co-authored by Candace Bahr CEA, CDFA and Ginita Wall CPA, CFP, CDFA. Copyright © 2004 by Candace Bahr and Ginita Wall. Published by John Wiley $ Sons, Inc. Candace and Ginita are co-founder of WIFE.org. Ginita is the originator of the Second Saturday program ("What Women Need to Know About Divorce"). Ginita is a nationally recognized expert and a frequent speaker on the subject of women and money. She specializes in advising people through life transitions, including divorce and widowhood. Candace Bahr is co-founder of Bahr Investment Group and is known nationally as an advocate for women's financial independence. Much of Candace's practice centers on helping women after the death of a loved one or an unfortunate divorce. Visit Wife.org for more information.