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Kate Ashford
Maybe it was the secret credit card purchases, which one in 10 people say
played a role in their separation or divorce, according to a report by UK price
comparison site Moneysupermarket.com. Maybe it was infidelity, the top cause of
marital breakdowns in Britain, according to a 2013 study by the UK s
Co-operative Legal Services. Maybe it was interfering in-laws, which 11% of
divorced couples blamed, according to the same study.
Divorce can take a normally very intelligent, efficient, high-functioning
person and turn them into a blithering ball of emotion. Jeffrey Landers
In any event, most people don t plan ahead for a divorce. When a split does
occur, a stricken ex-spouse may focus on immediate concerns, such as whether he
or she will get to stay in family home, rather than taking a longer view on
smart financial moves. A few pointers can help.
What it will take: Putting a price tag on a divorce is tricky. The cost can
vary by a factor of a thousand, said Cynthia Thompson, founder of financial
advisory firm Divorce Planning Solutions in White Plains, New York.
In Australia, costs range from AUD$1,000 ($955) to hundreds of thousands,
according to Brett Evans, executive director of Atlas Wealth Management in
Southport, Australia. In China, by comparison, a couple can get divorced for as
little as RMB19.5 ($3.20), according to Peter Murphy, a financial consultant
with Rock Private Office in Shanghai. Compromising is often less expensive than
fighting. If you and your estranged spouse have already agreed upon dividing
property and custody of any children, you will pay less than the couple who
racks up thousands in lawyer s fees to fight for every knick knack.
How long you need to prepare: The process varies depending on your location and
your situation. In China, you can be divorced in a day. You literally walk
into the same office you got married in and sign the divorce together, Murphy
said. But if there is an argument and property involved, it can take years.
In Australia, divorce can take four months if you prove that you have lived
separately for the prior 12 months, according to Evans. In the US, some states
require that you live apart from your spouse for a period of time before a
divorce becomes final. After that, finalising a divorce takes up to six months,
on average, unless spouses cannot agree on the terms.
To help speed things along, get a handle on your family s overall financial
situation all credit cards, debt, mortgage, investments, retirement plans. Do
you know how much your spouse earns? If not, find out. How are you going to
decide what a good settlement is, if you do not know all the moving parts?
Thompson said.
Make sure you also have access to credit. Have at least one credit card in your
own name. Not only does that build your individual credit history, but it gives
you a credit cushion if your spouse halts your authorised user access to his or
her plastic.
Do it now: If you do not have your own bank account already, open one and tuck
some cash into it. Just be aware you may eventually have to disclose that the
account exists in the divorce proceedings.
If your husband cleans out the joint bank account, you may not have enough
money to pay your bills, put food on the table, clothe your kids and then hire
an attorney, said Jeffrey Landers, president of Bedrock Divorce Advisors in
New York City and author of Divorce: Think Financially, Not Emotionally.
Put emotions on the back burner. Divorce can take a normally very intelligent,
efficient, high-functioning person and turn them into a blithering ball of
emotion, Landers said. Deal with your feelings whether that means seeing a
therapist or making a voodoo doll of your soon-to-be-ex spouse so you can
think clearly about money matters.
Research your accounts. When you look to divide assets, remember that money in
a pre-tax retirement account, such as a 401(k) in the US, is not equal to money
in a bank account. You will have to pay taxes on that money when you withdraw
it.
If you have a 401(k) and a bank account and they both have $100,000 but you
will owe $20,000 in taxes on the 401(k), then you only have $80,000 in there,
Landers said. Most people don t understand the tax implications and that is
critically important.
In the UK, charges may apply when money in a pension is transferred to another
account, so remember its overall value will be less. In Australia, happily,
retirement savings can be withdrawn tax-free.
Do a proper analysis on the cost of your home. Even if you do not have a home
loan, there are likely still property taxes to be paid, as well as utilities
and maintenance costs. Plus, you may not be able to sell your home for the
amount you want, or at all, depending on the market conditions.
Do it later: Change your beneficiaries. When you are married, it is common to
name your husband as the primary beneficiary on retirement accounts, pensions
and life insurance policies. After a divorce, revisit your beneficiary
designations, with advice from an attorney or financial planner.
Revise your estate plan. A divorce could invalidate a will. In most US states,
once you get divorced, the terms of your will are negated, Landers said. Your
husband is no longer your husband, so who does the money go to? Failure to
update your will could result in the state acting as if you have none.
Also revise any documents that gave your spouse the authority to make financial
and healthcare decisions for you in case you became incapacitated. In some
countries, those documents are known as powers of attorney and healthcare
proxies.
Check your tax forms. In the US, the tax rate for a single person is different
than the one for married couples filing jointly. Americans should fill out a
new W4 form to reflect their new circumstances. (Try the IRS Withholding
Calculator.) In the UK, you should let HM Revenue & Customs know about your
change in circumstances, particularly if you receive tax credits or you have
children. You can do that here.
Do it smarter: Even if you agree on everything in a settlement with your
ex-partner, it would be wise to engage the services of professionals not just
attorneys, but also accountants, financial advisor and appraisers who can
guide you through this often-complex process. You only get one chance at the
division of assets, and those choices can impact your finances for decades.