Preparing for Divorce: The Top 10 Tips You’ve Got to Know - Part 1

The more you prepare for your divorce, the more you increase your chances of getting the outcome you want. Plus, the more you prepare yourself for your divorce, the more time and money you are likely to save in the divorce process.

Here are 5 of the most important tips you will need to prepare for divorce as effectively as possible. We'll examine 5 more next week.

1. Deal with Your Emotions First. Emotions drive divorce. Period. They drive every argument. They fuel every court battle. And they cause most of the pain.

The more you allow your emotions to run wild, the more likely your divorce will spin out of control.

Of course, controlling your emotions while you’re going through a divorce is no easy task. Divorce is hugely emotional. No matter what you do, you’re going to lose it sometimes.

But, the more you can learn to keep your emotions in check, the less drama you will experience in your divorce.

Because of that, the smartest thing you can do is to start getting a handle on your emotions as soon as divorce becomes a possibility in your life.

Get yourself a therapist or a divorce coach, or join a divorce support group, as soon as possible. Waiting until you have a complete emotional melt-down before you get help is guaranteed to make your divorce more difficult to manage..

2. Get Organized & Collect Documents. Divorce is a document-driven process. You are going to need to put together a small mountain of financial information in order to get through your divorce. (Sorry!)

You’re going to need to gather your income tax returns, W-2 forms, paycheck stubs, bank statements, credit card statements, and tons of other documents.

What’s more, it’s not going to be enough to just dump those documents in a pile on your attorney’s desk. You’ve got to get all your documents organized too.

The more you can organize your financial information for your attorney, the less money you will have to spend to have your attorney organize that information for you.

Of course, when you’re going through a divorce, focusing on anything takes longer. Focusing on organizing financial documents (especially if you weren’t the one who handled the family finances) is even more challenging.

That’s why getting organized in advance is so critically important. The more organized you can be going into your divorce, the more grief you will save yourself during your divorce.

3. Invest in Your Education. The divorce process is not user-friendly. It’s complicated and difficult. It doesn’t work the way most people think that it works.

The more you know about divorce before you start your divorce process, the easier it’s likely to go. But, getting the education you need can be challenging.

First you need to learn about the divorce process itself, as well as the choices you have today for getting through your divorce. Those choices include mediation, litigation, arbitration, and Collaborative Divorce.

Then you’re going to need to learn how you can get yourself ready for whatever process you choose.

You’ll also need to know the basics about how finances work in a divorce. That includes understanding how property is divided in divorce, as well as how child support and spousal support (a/ka/ alimony) are set in your state.

If that sounds like a lot … it is! Thankfully, you don’t need to get everything figured out all at once. You also don’t need to know all the answers BEFORE you start your divorce.

At the same time, while you don’t need to become an expert in everything in order to be prepared for your divorce, knowing as much as you can will help you in a big way.

4. Understand Your Finances If you don’t want to end up behind the financial eight ball after your divorce you must understand how money works BEFORE you start the divorce process.

That means that you need to get comfortable working with numbers. If that thought scares you, it’s time to get over it. (Sorry to be harsh!)

Like it or not, divorce involves money. Not understanding how money works (and not taking the time to learn!) is the single quickest way to get completely screwed over in your divorce.

You can’t divide your assets unless you know what you have and what you owe.

 

You won’t know whether you will be able to survive after your divorce, unless you understand much money you will have coming in after your divorce, and what will be going out.

If dealing with numbers has never been your thing, that’s okay. You don’t need to get a degree in higher math just to make it through your divorce. But you do need to start learning the basics of personal finance asap.

5. Make A Financial Plan

Understanding your finances is step one in preparing for divorce. Having a financial plan for your post-divorce future is step two.

Miss either one of those steps and your post-divorce finances are not likely to be pretty.

A basic financial plan requires you to create two things: A budget, and a balance sheet.

Depending upon how complicated your finances are, you may be able to create both of those documents yourself.

If your finances are complicated, working with a divorce financial planner can be an enormous help. S/he can help you create a basic financial plan. A good financial planner can also help you create financial projections to show you how long your money will last, and how much you need to save to meet your future financial needs.

Many financial planners also work as financial investors. So, after they have helped you create a solid financial plan, they can also help you invest your money so that you achieve your financial goals.

Surviving a Grey Divorce - Part 2

While divorce at any age is difficult, divorcing later in life is qualitatively different than divorcing earlier in life. The reason is simple: finite resources.

When you are older you have a limited amount of time, money, and energy to recoup whatever you lose in your divorce.

When you get divorced in your 50’s, 60's, and beyond, you no longer have decades to rebuild your finances or your life. You may already be retired and your income may be fixed. Or you may have been hoping to retire soon. Either way, your career has likely peaked and your income is probably not going to go up in any serious way.

Last week we looked at 4 critical areas you must understand when you divorce later in life. Here are 4 more.

5. Health Care. The older you get, the more important health insurance and health care in general, becomes. Unfortunately, the older you get the more expensive it is to buy that health insurance!

Unless you are 65 and are covered by Medicare, you need to find some kind of health insurance after divorce that fits into your budget. (Even if you are covered by Medicare, you may need supplemental health insurance as well!)

The mistake many people make is that they don’t investigate their health insurance options until their divorce is almost done. They assume that they can get COBRA coverage at the same price as what their spouse is currently paying for his/her insurance.

When they discover that’s not true, and they find out that their health insurance premiums are going to cost more than their mortgage, their entire divorce settlement gets turned upside down.

What’s even worse is not investigating the cost of health care until AFTER you’re divorced! By that time, the die is cast. You need to find your own health insurans AND you need to apply for it within 60 days after your divorce is final.

That’s why it’s so important if you’re divorcing later in life that you work with a good health insurance broker as soon as possible. That broker can help you find and understand your options …and keep you from tearing your hair out in frustration!

6. Retirement. Getting a divorce after 50 can throw a giant monkey wrench into your retirement plans. Even if you scrimped and scraped so that you had enough money to retire at 60, getting a divorce can change everything.

In the best case, you will only lose half of your retirement accounts. In the worst case, you could lose more.

So the first thing you have to realize if you’re getting a divorce later in life is that you might not be able to retire as soon as you thought you would. Or, you may not be able to retire at all. (Yes. Ouch!)

In order to figure out your retirement options, it helps to work with a GOOD divorce financial planner. S/he can run projections showing you how long your retirement money is likely to last. S/he can also tell you how long you have to work before you can start drawing on your retirement money.

Finally, as with health insurance, it’s important to get complete financial information BEFORE you finalize your divorce. That way you can adjust your negotiations based upon a realistic picture of your financial future.

7. Big Expenses (a/k/a Money Suckers). If you are going to have to live on a budget after your divorce, you need to eliminate as many large, unexpected expenses as you can before your divorce is final.

Sadly, the two things that cause the most large, unexpected expenses tend to be two things people love very much: their house and their adult children. While you can continue to love both after your divorce, you may not be able to continue to support either.

Although most people think of their house as an investment, it is also a liability. Not only do you have to pay the mortgage, taxes, and insurance to keep it, but you also have to pay for maintenance and repairs. All of that can send your budget into a tailspin.

As much as you may love your house, selling it before you’re divorced can may make a lot of financial sense. That way you and your spouse will share any last minute repair costs as well as the closing costs.

Similarly, your post-divorce budget may not have room in it to support your adult kids. Even if you’ve been supporting them for decades, your divorce may force them to finally have to stand on their own two feet.

That’s not necessarily a bad thing. (Although they’re probably not going to like it and may resent you enormously, especially at first!)

8. The Loss of a Lifetime Identity. After you’ve been married for years – or decades – you think of yourself as a married person. You have married friends. You do the things that married people do. Like so many other married people, you dreamed of growing old with someone by your side. … or, at least you had those dreams once upon a time.

When you get divorced, all of that changes.

Your married friends will either take sides or avoid both you AND your spouse like the plague. It almost seems like they’re afraid that your divorce is catching, and that if they continue to spend time with you, they’ll end up divorced too.

Worst of all, for a while (maybe a long while!) you’ll question who you are. You won’t know what you’re “supposed” to do, or how you’re “supposed” to act. You will look back and start questioning your whole life, and everything you thought you knew. Looking forward is no better.

Suddenly, you’re not sure what your future is going to look like anymore. The vision you had for how your life was going to go just evaporated like a puddle on hot cement.

As if all that wasn’t enough, divorce will probably change your status, too.

When you were married, you lived in a certain area. You drove certain cars and had a specific kind of lifestyle.

After your divorce, you may not be able to afford any of that anymore.

Most people’s lifestyle takes a hit when they get divorced – at least for a while.

You may no longer be able to afford the things you had grown accustomed to having. If you still have kids at home, they may not be able to participate in expensive sports or attend private schools. Your adult children may have to learn to stand on their own, without help from mom and dad. Instead of shopping at Whole Foods, you may find yourself in Costco.

All of those things require a profound adjustment. They require you to change your mindset and adjust your identity. While younger divorcing people may have to make those kinds of changes too, it’s still much easier to make those shifts when you’ve only been married for two or three years than it is to make them when you’ve been married for twenty or thirty years.

Surviving a Gray Divorce - Part 1

While divorce at any age is difficult, divorcing later in life is qualitatively different than divorcing earlier in life. The reason is simple: finite resources.

When you are older you have a limited amount of time, money, and energy to recoup whatever you lose in your divorce.

When you get divorced in your 50’s, 60's, and beyond, you no longer have decades to rebuild your finances or your life. You may already be retired and your income may be fixed. Or you may have been hoping to retire soon. Either way, your career has likely peaked and your income is probably not going to go up in any serious way.

Here are 4 critical areas you must understand when you divorce later in life. Next week we'll look at 4 more.

Cash Flow. Surviving a divorce after 50 requires more than just getting a good divorce settlement. You also need to make sure that you bring in enough money every month to pay your bills. In other words, you need positive cash flow.

How do you figure out if you're going to have positive post-divorce cash flow? It starts by making a detailed monthly post-divorce budget BEFORE your divorce is final!

If you can see from your budget that you are not going to have enough money after your divorce to pay your bills you have three choices: make more, spend less, or live off your assets.

Making more may mean that you need to get a job. (Yes. That’s frightening!) Spending less may mean seriously downsizing your lifestyle. And living off your assets only lasts for so long.

Once you spend down your assets, they’re gone. So, unless you can afford to live off your assets without risking that you will run out of money before you die, burning through your assets at warp speed after your divorce is a really bad idea.

2. Kids. While everyone understands that divorce affects minor children, many people assume that getting a divorce later in life won’t affect their adult children.

It will.

It doesn’t matter how old your kids are. Your divorce will change their family forever. It will affect their relationships with you and your spouse. It may also affect their finances moving forward.

If your divorce leaves you (or your spouse) penniless who do you think will keep you from living on the streets? Your kids!

If your kids have to support you, your divorce will affect their finances. (Think about that when you’re negotiating your divorce settlement!)

Your divorce will also affect your kids emotionally. Adult children of divorce often have problems dealing with the demise of their parents’ marriage. It rocks their sense of security. It undermines their faith in marriage as an institution. It also shakes their own relationships to the core.

The bottom line is that you probably can’t shield your kids from all of the effects of your divorce. But if you pay attention, you may be able to at least soften the blow in significant ways.

3. Taxes. The amount of taxes you have to pay on the assets you get in a divorce can dramatically affect your bottom line. If you don’t understand that, then you may be surprised at what’s left after you pay Uncle Sam.

What’s more, if you were expecting to live off of your assets after you divorced, then the amount of money you actually get after taxes matters a lot!

While explaining all of the tax ramifications of divorce in one relative short blog post is impossible, there are a few basics you absolutely need to know. For example, you need to know the difference between pre-tax assets and post-tax assets.

Pre-tax assets are those assets that you HAVE NOT paid taxes on. Post tax assets are those assets that you HAVE paid taxes on. A Roth IRA is a post-tax asset. A regular IRA is a pre-tax asset.

Getting $100,000 from a regular IRA will not put $100,000 in your pocket. It will put $100,000 minus income taxes in your pocket. Getting $100,000 from a Roth IRA, on the other hand, will give you $100,000.

If you don’t pay attention to how taxes will affect your divorce settlement, you may find yourself dealing with a much different financial picture after your divorce than you had planned.

4. Spousal Support (a/k/a Alimony or Maintenance) Spousal support can play a huge role in many later-in-life divorces.

Paying long term maintenance can be a sizeable obstacle in divorce negotiations. So can securing those payments.

When someone is going to have to pay spousal support after divorce s/he also has to make sure that there is enough money to keep making those payments even after s/he dies. Most people do that by buying a life insurance policy on the paying spouse’s life.

But getting a life insurance policy after 50 (or 60!) can be expensive or impossible.

If the spouse paying support has a serious health condition, s/he may not be able to buy life insurance at all. Or, s/he may find that the cost of buying the insurance is totally off the charts! Because of that, securing maintenance is often a much bigger challenge for older couples than it is for younger ones.