Friday, February 16, 2018
How to Handle the D…Divorce
When I think of divorce I always go back to Mrs. Doubtfire. I conjure up thoughts of a deadbeat dad and an ambitious mother who is trying with all her might to hold the family together. I picture all the fighting, but then like any family movie from the 90’s, it all works out in the end. The reality of the situation is that divorce can be ugly. I have several clients that have or are currently going through a divorce and like marriage, they are all different. The financial impact of divorce can be devastating. Being a man, my thoughts automatically jump to rich men being chopped in half by their ex-wives. Escaping my own biases, I have seen that often the wife experiences great financial hardship due to her former husband’s poor financial dealings. I have no magic wand on how to make the situation better, but I do have some ideas on what should be considered when getting divorced. Today I will delve into things to think about when going through a divorce or planning to. While the marriage will end, you shouldn’t have to be financially ruined in the process.
Budgets become extremely important
Understanding what you make and where it goes becomes very important when going through a divorce. You are now going to have money coming out of every possible place. Full custody of the children will require the other spouse to pay child support. Alimony might come into play. Legal fees will be a huge expense. Moving expenses and new dwelling expenses are now part of the picture. When I speak of a budget being important for everyone it is not because everything is going great. It is because when everything goes haywire you now have a financial base from which to understand and crunch the numbers. It is simple to understand your finances when you are making killer money, and everything is handled easily. How about when you have an extra $2500 coming out every month? Getting back to basics will help you with the transition. If you are separating on good terms, if that’s possible, you might be able to go over it together. You obviously loved each other at one point, you should want each other to survive when things end.
How Much Does the Average Divorce Really Cost? – Huffington Post
Asset division
Dividing the marital assets can be very tricky. Some things have a fairly understood worth such as the home, cars, and investments. Other things are hard to divide properly, mainly those with sentimental value. Just like with marriage, divorce will require sacrifice too. It may be tough to conceive when you are in an emotional state, but the more civil you are the better the transition will be. It needs to be known that most assets will be divided exactly in half. This may require you to sell the home and divide the proceeds. If there is a personal business in the mix, that will be divided as well. If one spouse wishes to keep it, they will have to buy the other spouse out. This is the case even if one spouse had nothing to do with that business. It is an asset and it is entitled to both spouses. This can be a point of contention if one spouse did all the work of running the business. Know that this outcome is on the horizon and understand the ramifications.
Debt division
Yesterday I spoke about your partner’s debt being your debt as well. This becomes ever apparent when divorce comes into play. Net Worth equals assets minus liabilities. You will want to know your net worth as a couple and adjust accordingly. Debts as a couple will have to be paid so you both can move on. While the line of credit may be maxed out because of his after-work beer and chicken wing habit, both of your names are on it so both of you are on the hook. This is another reason why being debt free is so important. It makes everything cleaner and easier, even divorce.
The kids
It is important in divorce to focus on the well-being of the children. If you can step outside yourself and truly admit where they would be better off living, than it will be a lot easier for everyone. While they may seem like a good bargaining chip, they are humans and so is the person you are divorcing. If you were a part-time parent before the divorce, chances are you will be one after. In that case, defer to the full-time parent and give them custody. If joint custody is possible, that is also a great option. Make sure the kids are alright with it if they are old enough to comprehend. If they are too young to understand then maybe being with one parent most of the time would be best. Children thrive on routine and smashing that routine with a bitter custody war is not good. Child support payments will have to be made so be prepared for that. For the person that receives the payments, be conscious of the fact that this money is for the children and use it accordingly. Living it up off child support is not good for your former spouse and especially for the kids.
What is Your “Why?” – Budget Boss
What can go wrong
I have seen situations where one spouse racks up an absurd amount of debt under the other one’s name while the divorce is taking place. You must be extra vigilant with joint credit. Make sure you separate finances before the divorce is finalized. Furthermore, I have seen lawyers drag the process out for no other reason than they are on the clock for billable hours. I have witnessed spouses fight over nickels and dimes while their lawyers get rich. You are better off coming to a civil resolution than dragging the process out. That may mean one of you feels slighted, but the outcome will be better in the end. Also, be aware of any remnants of the marriage once everything is said and done. This includes investments accounts, life insurance policies, and memberships. You may be paying something for years without knowledge of it. You may also have your ex as the beneficiary of your life insurance policy years or decades after the divorce. Is that where you want the money going? Take some time and go over everything with a fine-tooth comb. Make sure you update your will as well. Taking these steps can make your life a lot easier in the years to come.
Divorce is never easy to deal with, but it can be a lot smoother if the proper steps are taken. Consult the right people including your lawyer, financial planner and trusted family members. Friends who have gone through the process can also be a valuable source of information. Remember that there was a point in time that you loved each other enough to get married. Use whatever love is left to handle the proceedings civilly and you will save time, money and loads of emotional heartache.
Thank for tuning in today as we conclude Couples Week at Budget Boss. Join us next week as we jump into a new exciting topic regarding personal finance. If you would like help understanding how to handle a relationship breakdown in terms of your finances, please do not hesitate to contact me at joe@budgetboss.ca. Have a great day Bosses!
“If you made a list of reasons why any couple got married, and another list of the reasons for their divorce, you’d have a hell of a lot of overlapping.” – Mignon McLaughlin
Email – joe@budgetboss.ca
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