Smarter Divorce Solutions provides services to individuals, couples, attorneys, and mediators to provide financial expertise to those embarking on divorce. With advanced training in all financial aspects of divorce including pension valuation, marital vs. separate property, taxes and tax optimization of settlements.
At a certain point in divorce, most people realize that this process is going to force you to, at a minimum, consider your budget. You can’t run from it. Even if you have a ‘do it yourself’ divorce, when you face living separately, you have to decide what you can afford. In other words, what will fit into your budget. This can be a very intimidating process, but it can also be the first step toward putting your income where you want to versus where you’ve always had to.
For some of us, these money issues may even be what led to divorce. Not having enough. Not agreeing on what is a priority. Spending too much of it or simply refusing to budget. These disagreements crop up in many ways. But now you get to make the final decision. The good news: when you take an honest look at your budget, you might be surprised at what you’ll find. Often, we do have enough, we just don’t plan it out very well.
So now is your chance to plan – what do you have coming in? Note your net income or the amount of money you take home. Of course, there are things that we have coming directly out of our checks besides taxes, but you can look at those if needed after you put your new budget in place. Right now, just note the amount that actually comes home. Now take note of your recurring bills. Things like the mortgage or rent, electricity and phone, etc. These should be bills that you know will hit every month and list them by date. Finally, list your incidentals like groceries and gas. Be sure to include your rare incidentals like an oil change or tags for the car.
Once you have this list, you’ve really outlined your budget. Break the total expenses out into a monthly amount and compare that to your income. Now you can identify if you actually have enough to pay your bills or if you need to reign in some of your expenses. The beauty part is that now you know instead of having to guess. Now you can consciously decide if any extra money goes towards savings or if you really have it to spend.
For bonus points and ease of budget execution, take the next steps. Arrange the distribution of your funds around your actual paydays and due dates. Be sure to separate that money that you allocated for the rare oil change and hold on to it, so that it’s there when the time comes. Consider putting the debit and credit cards aside and using actual cash so you physically process that money is spent. It will help dramatically with the tendency to overspend when using plastic.
One of the most important decisions that you can make to empower yourself financially, is to set your budget. Learn how to spend less that you make. If you need help, consider hiring a budget coach. A coach will help you with accountability and guidance towards reaching your financial goals. Contact us at Smarter Divorce Solutions and we’ll help you get started.
Have you been thinking about it for a while? Months? Years? Then it may be comforting to know that you are not alone. Many people that ultimately decide to divorce had their first thought about that possibility more than a year before they acted on it. And often, many years before! In my own case, my first marriage lasted a total of 16 years and I left him for the first time during the FIRST YEAR!!! Talk about red flags! While I can honestly say that my children will always be a blessing to me and I will never regret having married him, I will also admit that the marriage was NEVER healthy. I just needed to grow up enough to be brave enough to do something about it. The irony is that I actually didn’t! Ultimately, he left me!
Why does that happen? What makes us wait so long? Why do we sacrifice so much? Well, I’m not a psychologist but God knows I’ve spent my fair share of time in front of them. Having been through it and come out very healthy on the other side, I’ll share what I know for sure – Oprah style.
What I know for sure:
When I said “for better or worse” I actually meant it! I was so loyal that I was committed to work through anything. Even if it meant sacrificing myself. That’s not healthy.
If your marriage is really hard work, you’re married to the wrong person.
If you don’t like the person you are most days, you’re with the wrong person.
If you feel bullied, controlled, ignored, or completely misunderstood, you’re with the wrong person.
If you’re staying together for the kids, you’re hurting your kids, not helping them.
Kids need to see a model of a healthy love relationship or they will not know how to have one.
The right relationship is nearly effortless. I know. I have one now.
The right mate inspires you and you want to become a better person just for them because you feel so lucky.
Think about it and you may be able to reclaim some of your time. Food for thought.
Finally, the worst is over, and you’ve made it through. The emotions, the fatigue, the fear, the anxiety! All of it, and you survived! Then it hits you, now you have to manage your finances on your own and they look VERY different than they did when you were married. Where do you even start to sort it all out? Can you afford to go to the movies this weekend? You’re not even sure.
Unfortunately, many put their head in the sand like an ostrich. “If I just pretend everything is ok, then it will be!” But we are not going to do that. We’ve already survived much bigger things!
So where do you start? Let me give you the first 5 things to help you conquer the money demons and begin the next phase of your life with confidence and control.
1. Start a Budget
Even if you had a budget when you were married, toss it out. You need a new one reflective of your new reality. Don’t get freaked out by the word “budget”. I know that when you hear it you think “diet for my money” and that’s not the case! A budget is the one and only way you can shift from unconscious spending to conscious choices that will lead to the outcomes you want. Let’s call it “a new plan”. That’s right, a budget is basically a new plan for your money that will guide you to financial success! By the way, a budget is just a list of income and expenses and savings goals. If that still sounds foreign, hire a Budget Coach. There is no better way to get moving towards your new financial goals.
2. Review Your Divorce Decree Thoroughly
One of the services I provide is post-divorce transition assistance and the first thing we do is go through the decree with a fine-tooth comb. I have been STUNNED to discover that in about 75% of cases, there are assets that the client is entitled to that haven’t been transferred and they didn’t even realize they were supposed to get! Once your attorneys are done with your case and have the final judgment, it is up to you to do all the tactical work of actually moving the assets around. If you don’t understand the legalese of your divorce decree, be sure you have an attorney or financial professional review it with you.
3. Create a Filing System
If you don’t have one yet, now’s the time to create a filing system next to the computer that you typically will use for your online banking, budgeting, etc. My best advice, going electronic with either a portable hard drive or cloud folder like Dropbox or Google Drive is essential! You don’t want to wake up one day to a crashed computer and all your files are gone! Of course, people still worry about the security of these options. But, you know what, it’s as secure as it’s going to get, and I choose not to dwell on it and pay for an identity protection service. If you insist on old-fashion paper files, that’s okay, the important thing is to create a system.
4. Pay Yourself First
This is the most important step to securing your financial future. There is one simple thing that always separates the wealthy from the not so wealthy. ALL wealthy people live beneath their means – spend less than they make. It’s a simple concept really but in the US we are such a culture of instant gratification and easy credit that we breed poor money habits like mosquitos in Mississippi. It doesn’t matter how much you make, the first 10% goes to pay yourself – period. If you just can’t see how that could be possible, sit down with a financial coach and discuss some choices. I promise you, it’s possible.
5. Hire an Advisor You Can Trust
Even if you don’t have a ton of assets, you need to hire an expert to help you with your planning and management. The money you spend will come back to you tenfold. Even if you have financial experience and investing knowledge, if it’s not your priority, you’ll tend to ignore your investments when changes should be made and chances are you won’t have a clear plan that you monitor annually. Find that financial partner you can trust. Interview them carefully and make sure you know EXACTLY how much you’re paying in fees. You should NEVER pay total fees over 1.5%.
Hopefully those tips will get you started. Take some deliberate action in each of those areas and you’ll be well on your way to financial independence. You can do it! It’s never too late to start today. Good luck!
Going through the divorce process can make you feel as though everything you thought you knew about your life and your future is suddenly flipped upside down. The struggle begins to make sense of the pieces that remain. In an effort to retain some semblance of normalcy, it’s common to want to stay in the house that you are used to, especially if there are children involved. While it is tempting to want to lean on the something familiar like the family home, be aware that it may also be the most costly mistake you can make.
First and foremost, take a moment to think practically and not sentimentally. A house is somewhere to live. And even with today’s sharing economy, unless you are willing to invite strangers into that space, it will not provide any income to support your lifestyle. Furthermore, if you and your spouse lived there for a long period of time, there can be a fairly large chunk of equity trapped in those walls. If you are awarded the home in the divorce, it could be the largest asset in the settlement.
Let’s assume the home has a market value of $400,000 and there is $300,000 in equity. As marital property, half of that equity is yours, but the other half is your spouse’s. So if you are to keep that home, then a full $300,000 of your settlement will be tied up in that property. That same money could generate over $13,000 a year in income if it were invested conservatively. And don’t forget about the costs of upkeep and maintenance that will increase the amount of income you’ll need just to make ends meet.
You should also make sure that you are aware of the potential tax impacts down the road. If you were to sell the house while you are still married, the $300k capital gain would fall under the marriage exclusion of up to 500k and be tax-free. Once you transfer that home into your own name, if you sell it now with a gain of $300k, the personal exemption is only $250k so you will owe capital gains tax on 50k of gain or $7,500 and even more if you’re a high wage earner.
Divorce is difficult but you also have an opportunity for a fresh start and getting off on the right financial footing is essential to your future. To be certain that you understand all the ramifications of any property settlement you are considering, bring a Certified Divorce Financial Analyst® (CDFA®) into your team to shine the light onto some of these issues. You only have one chance to get your settlement right. Take the time to gather information and make sure you are doing the right thing. It will be the best decision you ever made.
There are several things that people expect to grow during a marriage. Wealth, assets, family size and retirement accounts are all in the positive column. But what if your debt has also grown over the years. And to make matters worse, now you want a divorce. Some folks would let the debt keep them in the marriage, thinking there is no way to separate the union without making things exponentially worse.
While this may sometimes be the case, there are many creative ways to address debt with a positive outcome when facing a divorce. The first thing you should do, talk to a Certified Divorce Financial Analyst®, CDFA®, practitioner. By looking at your big picture, a CDFA® professional can find options that you may not be aware of for addressing the debt with some of the assets that have grown over the years.
One place to look is your home. Divorce is generally a time for both parties to consider downsizing. With the income that used to fund one household now funding two, it makes a lot of sense. But even if one party keeps the house, refinancing can be a great way to take out some equity in the house to pay off debt so both parties can start fresh.
Maybe between you and your spouse, the biggest portion of your wealth lies in retirement plans. Therefore, you don’t consider it to pay off debt. Think again, the divorce process includes options to access the cash in qualified retirement plans without penalty even before you reach 59 ½. The cash that you take out will still be taxed, but through a Qualified Domestic Relations Order (QDRO), it can be used to pay off your debts.
Now, let’s look at it from another perspective. You have already decided to face the debt and move forward with the divorce. You’ve simply decided to separate the debt, just like you separate the assets. Divorcing couples need to keep in mind that the divorce decree is binding to the two married parties, not your debtors. So, if some debt is assigned to your spouse and some assigned to you and your spouse stops paying, the debtor will still come after you. That is why it is important to do what you can to pay off marital debt so that it does not come back to haunt you. Or at a minimum, include protections and triggers in the decree that help control the damage.
The key to handling financial issues when divorcing is having the proper people on your team. And it can be especially crucial when debt is involved. It can be the difference between a new life paying debt on your own, or a truly debt-free new beginning. And it can also include learning how to stay debt-free by sticking to that new after-divorce budget. Let us help you put the right team in place.
So, you’re thinking about divorce. If you are on this website, and reading this article, then you are on the right path. Because you need a plan. I know it can be an emotional and stressful time. It will also be a time when your thinking is the cloudiest. It’s typical to have trouble understanding simple concepts or even wrapping your head around every day problems. So relax, take a deep breath, and think about these 4 simple things that will help you prepare financially for a divorce.
This first step might seem obvious, but make sure you have access to some money. That can mean a credit card in your name only, a separate bank account in your name, or even a stash of cash in a shoebox or safety deposit box. Some couples function just fine working from joint accounts during their divorce, but I’ve also seen vindictive spouses empty joint accounts as soon as divorce is mentioned. You don’t want to be left without access to funds to pay for divorce professionals or to move into a place of your own. Be smart and take the necessary precautions. Now, don’t take this to mean hide money, because you will disclose this amount later in the divorce process.
To be prepared for the settlement discussions to come, gather all the financial documents you can get your hands on. I’m talking about bank statements, retirement and investment account statements, mortgage statements, paystubs, tax returns, insurance policies, credit card statements, and anything else that seems important. Having copies of all this not only helps you stay informed about your financial situation, but will save you money when you meet with a divorce professional and already have an organized file of your financial life.
It can be easy to get so wrapped up in the details of the present that you forget about the future. Don’t. Stop and take some time to think about your life after your divorce. In particular the financial side. Where do you want to live? What are your expenses going to be like? I recommend you put together a budget outlining all your expected living expenses. This will give you some clarity about what you’ll need moving forward and will lessen some of the anxiety about the future.
Finally, think about the costs associated with a divorce. If you think it’s going to be a battle for every asset and advantage, then attorneys will be involved and $20,000 or more will evaporate from your bank accounts. If you envision a more amicable process then perhaps mediation is in your future. It will allow the two of you to talk through the issues and agree between yourselves what works best, saving a lot of money in the process. In either case you may want a financial professional, like a Certified Divorce Financial Analyst®, to be part of your team. They can help remove any confusion about your financial situation, present options for the division of your assets, and provide a picture of how a given settlement will impact your financial future 20 years out.
A divorce is probably the largest financial transaction most people will undertake during their lifetime so make sure you are fully informed. These 4 simple things will get you started on the right track and help make the difficult process of a divorce go more smoothly. Best of luck.
For many people, divorce means more than facing a future where you now check the single box. It also includes a future where you must now check the bottom line, as in live on a budget. And even though budgeting is now necessary, not many people do it. According to a 2013 Gallup poll, only one in three Americans prepare a detailed household budget.
As a CDFA® practitioner, I’ve seen cases where a spouse has not had to consider the household finances for many years so facing that change can feel intimidating. Where do you start? How do you go from a carefree lifestyle where you had more than enough for the ends to meet, to watching every penny? One of the first places to start is in your mind. Take the leap and go from looking at your budget as a punitive chore that you have to face because of divorce, to a new chance to set your future financial goals.
As you probably know by now, part of the divorce process includes looking at your spending and earnings to see if maintenance is needed or even possible. Use this opportunity to do a deep personal dive and look at what you are spending your money on. Is this where you want to spend your money? Are there things that you find more important that you would rather spend your money on? Are the things that you deem necessities really necessary?
A great benefit of this process is you really identify what is coming in and going out. Now you can truly determine if there is enough and take steps accordingly. Maybe it’s not enough and you need to decide on a course for a new career. Maybe you find that it is enough and now you will hold yourself accountable and save the extra income versus spending it. The beauty part is the choice is now yours and you can use this life changing event as the point where you take a better route to financial empowerment.
Be sure that you have the proper professionals on your team to guide you through the process. You can contact us if you need references or help. But the most important thing you can do is take a step forward. Do not ignore the finances. A lot of times, it may feel like we don’t have enough, but by just paying attention to where the money goes, you may find that you have plenty.
A very accurate description for divorce is an emotional roller coaster. Lost. Scared. Bitter. Lonely. Relieved. Shaken. Sad. Angry. Hopeful. It’s not anything that anyone should have to endure alone. A sign of the times is that divorce has become so commonplace that there are tons of resources available to help you survive the process. With the right combo, you may even make it out with some level of dignity.
First, let’s get this out of the way, DO NOT just rely on friends and family! Don’t get me wrong, they’re great for a shoulder and to keep you distracted and to remind you that you are loved. But, their advice can often be misguided, uninformed, and downright damaging to your ability to think straight. They can’t help it, they’re biased. Get your advice from objective professionals.
When considering useful resources, the first that I think EVERYONE needs during the process and for at least a little while after is:
1. A Good Therapist
There is just so much emotional trauma caused by divorce that you really need to talk it through with a qualified professional. This is the only way you can hope to form relationships that aren’t doomed to repeat your past. A therapist will help you explore your role in the end of your marriage so you can get clear about your goals for the next phase of your life.
Almost every community in the country has a non-profit that offers divorce support resources. In Arizona, we have the Fresh Start Women’s Resource Center. Check your local community for those in your area.
3. CDFA® or Financial Planner
The most common and paralyzing fear that nearly everyone feels in divorce is “Will I be ok financially?” It’s inevitable. Before you agree to any settlement, you really need a second set of eyes and some financial projections so you know what you’re going to be looking at. Of course I’m biased and would prefer that you find a Certified Divorce Financial Analyst® practitioner, CDFA®, actually trained specifically in the finances of divorce but like I said, I’m biased.
4. The Internet
Divorce has become big business. New resource sites pop up every day offering a wealth of free information, downloads, blogs, referrals, directories, etc. It can be somewhat overwhelming so just pick out what you connect with and leave the rest. Go slow. Be kind to yourself. Also, Meetup.com is a great resource for local divorce support groups. Going to a few is a good idea but don’t let yourself sink in too long. Recovery is supposed to be about getting better and I know too many people that stay stuck in grieving and never move on. Use a support group to move through the process and then – move on.
This is going to be a challenging time in your life. Ultimately, you will be stronger, happier, and ok – as long as you choose to. Use the resources available to you to make good decisions for yourself. Today truly is the first day of the rest of your life.
You and your spouse have decided to move forward with the divorce. But, you are still underwater on your primary home, or maybe you don’t have enough equity yet for whoever wants to stay to refinance. Don’t despair. There are still creative solutions for this scenario even with the housing market collapse behind us.
In all actuality, I have helped clients who just were not ready to face house hunting on top of the major life change that divorce throws at you. In this scenario, the wife wanted to remain in the home with the children for two more years, and then think about the refinance. The husband agreed that the wife could stay as long as it didn’t jeopardize him or his financial future.
So how can this work? First, the couple will have to decide if they will both participate in the growth of the equity for the next few years or not. For today’s illustration, we’re going to say “yes”, both will participate.
Here are the other pertinent details: Mortgage payment with taxes and insurance is $1500 per month. Market rental rate would be $2700 per month.
So, think of it this way – both parties are basically now landlords of their home and will invest in it 50/50 until it is either sold or refinanced at a date two years from now. So they will split the costs that a landlord would typically pay; mortgage, interest, insurance, major repairs and maintenance. The wife has to “rent” the home from them both. So her “rent” is $2700 to the couple, half of which is hers, meaning in addition to her half of the mortgage, $750, she must also pay $1350 rent for a total of $2100 per month plus any utilities and monthly upkeep. Since the total mortgage payment is $1500, she can just pay it and then pay Husband the difference of $600 per month. Each year, they will split the deduction for mortgage interest and taxes.
An important benefit of this arrangement is that if Husband wants to buy a new home on his own, this scenario allows him to offset his portion of the mortgage payment with rental income to help preserve his ability to obtain a new mortgage if he chooses. It’s not rental income in the eyes of the IRS. There’s no actual lease agreement but if the decree clearly lays out the agreement most mortgage underwriters are not penalizing the non-resident spouse.
The important thing in a scenario like this is ensuring that protections be written in for the non-residential spouse. Typically it will be required that each month the payer spouse must provide proof of mortgage payment and if at any point, the mortgage is more than 30 days past due, the non-resident spouse can order the sale of the home immediately. This gives at least some sort of protection in the event that the mortgage payments become too much to handle for the remaining spouse. They also will need to re-title the home from Joint Tenants to Tenants in Common. That way, if anything happens to either of them, their ownership in the home goes to their estate, not their ex.
Our goal at Smarter Divorce Solutions is to help couples manage a kinder, gentler divorce. Where there’s a will there’s a way and if you and your spouse are amicable enough, we can help you make this work fairly easily. Contact us for a Strategy Session.
This question stops so many people in their tracks. You know your marriage is no longer working. You want to provide positive and healthy examples for your kids of how to live a good life and get along with your spouse. But you feel trapped. Because you don’t know if you can make it on your own financially if you divorce.
The main thing is to not stop at the unknown. Yes, you don’t know. So, go find out. This is where a Certified Divorce Financial Analyst® practitioner, or CDFA®, comes in. We will help you find out if you can make it on your own. And if you can’t, we’ll help put together a rehabilitation plan so that you can get to a point where you can.
I’ve seen this fear in clients from all walks of life; a homemaker that doesn’t feel like she can make enough money to continue living a certain lifestyle, a spouse that in their current job makes a fraction of what their mate makes, a couple where they earn similar amounts, but their finances are tied up in the home and retirement accounts, a primary provider who doesn’t feel like they make enough to also support their non-working spouse indefinitely.
A CDFA® professional will look at your income and assets and be able to craft a settlement that can take each of those scenarios into account. Do you need two years where maintenance is a little more to get training for a better paying job? Would it help with a home purchase to be able to access a portion of your retirement accounts penalty free? Will you still be able to save towards your retirement and future if you are paying maintenance. You can get knowledgeable answers to these questions that take out the guessing and give you a 20 year look at your financial future.
Recently a client was almost paralyzed with fear about not receiving maintenance and being placed in a position where their standard of living would drop dramatically. We were able to look at the marital assets as they existed and assure the client, that even if you just split the assets and received no maintenance, she could maintain a standard of living very close to what they had been experiencing.
Just like therapy, you may need a little coaching or help to figure out how to work a new budget. But you can craft a future with financial goals that will help you make it on your own. The answer is out there. The first step is finding a Certified Divorce Financial Analyst® professional to look at your assets and help you devise a plan to make it possible.