“Those who do not weep, do not see.” —Victor Hugo
Stable marriages finance families; financial disputes disrupt. Approximately 43% of first marriages fail in America. As a widower and divorcee—now happily married—I know the extended pains of divorce can be just as disconcerting and perhaps more shameful than death.
Pray, meditate or seek counseling before obtaining proper legal advice for irreversible leaps. Proactive financial counseling may save marriages. With disclosures fully signed in advance, I have represented couples as a neutral planner and tax representative and have helped separate partners.
Divorce may embitter or may thrust survivors into planners of their own lives who shout: “Carpe Diem!”
Planning for Divorce
Ideally, divorce can be a spiritual practice where both partners contain anger and limit greed and perhaps even establish grounds for renewed friendship. Major issues are custody of minor children, division of property and perhaps alimony or child support.
With luck, you can solve these issues over coffee and then wait six months for an uncontested California divorce with little legal expense. Failing agreement, non-binding mediation can resolve these disputes in a counseling setting with an attorney who can draw up joint agreements for the courts. Divorce arbitration lets private judges decide divorce interests and it still is cheaper, faster and less public than court.
California divorce law plays into this all. Assume that all property is community property unless it meets exceptions: prenuptial or postnuptial agreements, property acquired before marriage, gifts, bequests, student loans or personal injuries. Thus, wages, investments and real estate are usually common.
Barring exceptions, judges split community property equally. Alimony and childcare usually go to the financially weaker partner or the one caring for children and alimony generally increases after ten years of marriage
Adversarial Divorce
Many partners feel wronged by marriage and seek solace in divorce gains. Before divorce, they may run up credit cards as marital debt is common. Or they create tax debt by lowering withholding on wages. Assets may be hidden or destroyed, and black-market earnings obtained in the shadows to remain out of settlements. Post-divorce, spouses and courts try to track illegal income which may be owed.
Savvy lawyers may protect clients while the planner helps divorcees decide whether the rights to single company stock options, business interests or even a paid off home outweigh the value of more cash. Real Estate is generally indivisible, and banks do not usually transfer mortgages with lower interest. Or they may weigh the lump-sum payment of a settlement against the annuitized payments that may come from alimony and childcare, neither of which currently give deductions to the payer. Divorcees should consult CFPs on time value of money questions.
When Family Court finalizes divorces, partners settle by splitting accounts, QDRO orders, retitling houses and businesses and childcare settlements that may give parental rights and responsibilities only on certain days. Separating spouses without trust file MFS but must share community property information for IRS income splitting on Form 8958. MFS filers may lose out on credits (EIC, Education credits) or deductions—e.g. declaring high medical expenses with high joint income.
If partners retain financial trust, they may file jointly until the final decree or long separation lets them file singly or Head of Household.
Post-Divorce Planning
Financial challenges are likely to increase for most post-divorces, and most people need 30% more income to maintain their standard of living. One in three women lose their home post-divorce and one in five fall below the poverty line.
Children frequently do more poorly in school and lose after school opportunities. Men with low income suffer most, but men with higher income may have wages or earnings garnished for alimony and child support.
Divorce may bring anguish—or redemption of spirit. You can start a new career, move elsewhere or consider new partners. Now is the time to get deeply psychological with yourself and perhaps meet a financial life planner over time to decide what you really want from life and how your new financial architecture enables you to do this.
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial advice as his client’s fee-only fiduciary. He serves mostly Santa Cruz Mountain dwellers. These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals. Learn more at www.carpediem.financial.
