Divorce & Money: How to Make the Best Financial Decisions During Divorceby Violet Woodhouse, Dale Fetherling
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Divorcing? Get everything you need to split assets and debts as fairly as possible. When you're going through divorce, you have to make an overwhelming number of financial decisions. Should you sell the house? What happens to retirement benefits? How will you handle taxes? Full of sensitive and practical advice, Divorce&Money guides you through the complex process of making these important, and sometimes life altering financial decisions. It covers how to: - decide whether to keep or sell the house - protect yourself against misuse of joint accounts and credit cards - avoid tax problems - handle alimony and child support - divide debts fairly - avoid hasty decisions that could hurt you financially - reduce risks to your investments - understand how a court evaluates assets - gain financial stability as a single person The fully updated edition provides the latest tax figures and data, plus new information on dealing with credit problems, bankruptcy, foreclosure, and during or after divorce.
Liz Pulliam Weston
“Reduces the financial complications of divorce into comprehensible strategies.”
“An essential purchase for anyone contemplating a split...”
-Los Angeles Times
“At the very least, you should read Divorce & Money so that you better understand your legal rights.”
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Read an Excerpt
Sooner or later during a divorce, you will discover the one insight that is central to this book and to the successful outcome of your settlement:
Legal reality and financial reality are fundamentally different.
A seemingly simple idea -- but you'd be surprised how long it takes to sink in. To help you understand why this concept is so important, take a few moments to consider the following real-life divorce stories. In each, read the legal reality first. Then, see the true outcome in the Financial reality side.
Legal Reality Financial Reality
Jonathan and Penny were married for five years before they divorced. During that time, Penny frequently ran their credit cards to the limit buying clothing, and had trouble balancing their checkbook.
When they reached the final settlement hearing, Jonathan was greatly relieved when the court made Penny solely responsible for paying the $10,000 in credit card debts she had accumulated during their marriage. The settlement was included in the final divorce judgment, which made Jonathan feel safe.
After the divorce, however, Penny didn't pay off the credit cards, and creditors began hounding Jonathan for the money. Jonathan ended up footing the bills, because a divorce settlement assigning debts -- even one included in a divorce judgment -- cannot change a couple's original joint obligation to their creditors.
Had Jonathan raised the issue before their settlement was finalized, he could have demanded more property in exchange for paying Penny's debts or insisted that they sell some jointly held property to pay off their creditors.
Moral of the story:
Getting something"in writing" from the court doesn't always mean you'll get it for real.
Legal Reality Financial Reality
During their 15-year marriage, Sharon and Bill were committed to building up a good portfolio of stocks and mutual funds for their retirement.
Because Sharon avidly followed the market, she wanted to keep a batch of stocks she had recently purchased and asked Bill to take stocks of equal value, which they had purchased early in their marriage. After negotiating over a few other assets, Bill and Sharon reached an agreement in which each of them would receive the exact same dollar amount in cash or assets at the end of the divorce. The court accepted the terms of their settlement, and the books on their marriage were quickly closed.
Sharon paid attention to basic financial facts that Bill ignored: costs and taxes that decrease the value of an asset.
Sharon wisely picked the stocks most recently purchased. Because these stocks had not increased substantially in value, the taxable capital gains were low. Bill, however, blithely accepted the older stocks, which had gone up a lot in value since the time of purchase. Even at a capital gains rate of 20%, he owed substantial taxes when he sold the stocks. Had he taken the time to calculate his potential tax burden before agreeing to the settlement, he could have suggested splitting the stocks so that each spouse took half of the older stocks and half of the newer stocks.
Moral of the story: A 50-50 settlement isn't always equal.
Lessons in Legal Reality
Ending a marriage with no assets or huge debts is the hard way to learn about divorce. Your lessons do not have to be so costly. You would never try to play basketball with football rules or to cook Chinese food using classic French recipes, would you? Similarly, you must learn to follow the correct "rules" for playing in the legal league versus the financial field.
The following five guidelines explain the legal basics of divorce:
* Most divorces are settled out of court.
* Generally, divorce law is local.
* Don't expect the legal system (or a lawyer) to take care of you.
* Your future is in your hands -- not the court's.
* It's easier to write laws than to enforce them.
Most Divorces Are Settled Out of Court
You may imagine that you'll have a divorce trial like those on an old Perry Mason or L.A. Law episode -- everything settled in an hour with the "good guys" winning. Perhaps you're waiting for your day in court when you can explain to a wise and kindly judge the exact wrongs your spouse has visited upon you.
Don't count on it.
An estimated 90% of divorce cases are settled without a court trial. Most of your settling will be done through meetings between you and your spouse or between your lawyers, often on the courthouse steps. As the trial date nears, you will quite likely be rushed into conferences in the courtroom hall or coffee shop. In these frantic meetings, your spouse and/or the attorneys may confront you, demanding instant decisions on issues that will affect the rest of your life.
Realize, too, that most divorce courts today are primarily concerned with money, not morals. The main job of the legal system is to resolve property disputes and to ensure the welfare of any children. Spousal misconduct, of course, could affect custody, and economic mischief (such as hiding assets) can change the outcome of the final settlement. But by and large, you will not get a chance to vent feelings about your mate in the courtroom.
The impersonal atmosphere of the legal world may baffle you. But, in fact, it is often to your advantage to stay out of the courtroom. As long as you and your spouse work toward a settlement without involving the court, you can trade property, negotiate terms, and still maintain some measure of control over your destiny. If you cannot reach a settlement and must have a trial, however, you put your fate into the hands of a judge -- a stranger who knows nothing about your children or property. You'll have to live with whatever that judge decides.
Divorce Law Is Local
Divorce laws not only differ from state to state, but interpretations of divorce law can vary from judge to judge. Whether or not you ultimately hire an attorney or have a court trial, you should ask local lawyers to assess the most likely outcome of a divorce like yours. Ask about the types of settlements local judges tend to approve. Find out how the local courts and individual judges view mediation. Also ask about judges' attitudes toward women or men, and the prevailing mood regarding, for example, joint custody, moving away with the children, or alimony.
Understand, too, that divorce courts are unlike other courts. They are called "courts of equity," which means that the judge has wide discretion in making decisions. While a lawyer can educate you on the law, a lawyer cannot ethically or realistically promise what the judge will do in your case.
You may not like what you hear. A lawyer may tell you that the things you want in your divorce are impossible to get. Another attorney may promise you everything, but ultimately deliver nothing. Interviewing several people for a cross section of opinion can give you a more accurate picture of your situation. (See Chapter 7 for information on hiring an attorney.)
If you know how individual judges normally rule in your locale, your expectations will be more realistic. Even if you don't have a trial to settle matters (remember, 90% of cases are resolved before a trial), divorce lawyers tend to give advice that is consistent with local court rulings. Granted, it's hard to ignore sensational newspaper stories about big-dollar divorces in other parts of the country. But those cases are irrelevant. You must concentrate on what happens in your backyard, because that is where your divorce and your financial future will be decided.
Throughout this book, we may tell you to "check with an attorney" on various questions. We say this because the individual circumstances of your divorce may require legal information beyond the scope of this book.
But who is going to pay for this costly legal advice?
Attending a brief consultation with a lawyer should not bankrupt you. Organize your thoughts and questions before you seek legal advice so you can save time when the attorney's meter is running. At an initial visit, spend an hour -- not a day. Then go home and think about how much more you may have to spend on an attorney.
In some cases, your spouse may have to pay all or some of your lawyer's fee. The lawyer should be able to advise you about this at the initial consultation.
If you have very little money and feel you truly need advice from an attorney, consider borrowing money, holding a garage sale, or taking a short-term second job to get some money to pay legal fees. As an inexpensive alternative, see whether a local law school or bar association has a divorce clinic where law students can assist you.
For more information on finding -- and working with -- lawyers, see Chapter 7.
NOTE: Do not let your spouse's attorney or anyone else chosen by your spouse be the one to represent you. If your spouse is represented by an attorney, you should be also. Except in very limited circumstances, one attorney cannot represent both parties in a divorce action.
Don't Expect the Legal System to Take Care of You
One of the most costly illusions in divorce is the idea that the judicial system will protect your rights and meet your needs. You cannot afford to make that assumption. You are the one who must make the decisions in your divorce, because you are the one who will have to live with them.
Attorneys and other professionals can help you understand your rights during divorce, but they should not determine what your financial needs will be once the marriage ends. Just because you are "entitled" to a certain property (say, the house), that does not mean you can afford to keep it. Even though you may want to remain a freelancer, you may have to get a steady job so you can support your family after a divorce. Only you can make these decisions.
Instead of passively going through the motions of divorce, you might do better by adopting the active attitude of an entrepreneur. Businesspeople starting a new company go to lawyers to have them formalize agreements and assess legal risks -- not to ask whether or not they are making a smart financial move. The entrepreneur sits down with accountants and financial professionals to crunch the numbers and determine whether a business will turn a profit. Only then, after examining the financial aspects of a venture, do they consult with attorneys about potential legal problems.
Likewise, you must be the one to call the shots in your divorce. Don't expect the legal system to make the decisions that are best for you.
Don't Be Afraid to Ask Questions
Don't be intimidated or afraid to ask questions if something is unclear. One divorcing woman admitted that some of her troubles resulted from her own unwillingness to appear ignorant. In an interview with sociologist Terry Arendell in the book Mothers and Divorce, the woman recalled her divorce and commented, "Part of the problem was my own fault. I gave the appearance of being knowledgeable. I knew more about buying property and bank accounts than my lawyer did, but I didn't understand all the tax things. And so I was reluctant to ask some of the things I should have asked."
What People are saying about this
Steve Crowley, host of "Your Money Report" and author of Money For Life
Meet the Author
Violet P. Woodhouse, noted author, lecturer, seminar presenter and consultant to the media in the areas of family law and personal finance, is a foremost authority on the financial and tax aspects of divorce. A practicing family law attorney as well as a Certified Financial Planner and Registered Investment Advisor, she pioneered the development of financial analysis of property settlements for financial planners, and often acts as a consultant to divorcing spouses and their mediator during mediation. Ms. Woodhouse is in private practice in Newport Beach, California, and has authored articles for the state and local bar associations and legal newspapers. Coauthor of Nolo's Divorce&Money, she has also written articles for or has been quoted in such publications as the Wall Street Journal, New York Times, Working Woman, Lear's, Money Magazine and Kiplinger's Personal Finance Magazine. Worth Magazine has named her one of the top 60 financial advisors in the nation.
Matthew J Perry has edited, ghostwritten and collaborated on many books, primarily in the genre of money and finance. He lives with his wife and son in New York City.
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