The best way to recover financially from divorce is to do it from the start. Here's how collaborative divorce works and the far-reaching benefits it offers.
Divorce has such a dramatic potential, it's practically its film genre. The most recent example is the story of the wedding nominated for last year's Oscar. Other films that describe divorce in the worst way: Kramer vs. Kramer (with Meryl Streep and Dustin Hoffman), Danny DeVito's War of the Roses and Scenes from a wedding by Ingmar Bergman. SEE ALSO: Raising Your 401 (K) Can Be Divorce Disaster
Like those movie couples, couples with divorce in real life often make a potentially traumatic ordeal worse by turning it into a stalemate and often a zero-sum game. Although a film about a less controversial and cheaper alternative to these high-profile divorce cases will probably never be made, there is a better way.
What is a collaborative divorce?
In the event of a collaborative divorce, the spouses who split agree to stay out of the courtroom. Certified divorce attorneys can bring together a team that can include a certified divorced financial analyst or a CERTIFIED FINANCIAL PLANNER ™ professional, a divorce "trainer" who is a mental health professional and child psychologist if children are involved. little ones.
Each spouse still has its own lawyer. But above all, while lawyers are still supporters of their clients, they are not opponents of one another. all are part of the same team. The rest of the team is neutral, objective and observes the big picture.
Even with the specialists gathered, a small part of what is expected in litigation is still being spent. And keep control of timing and decision making. You have multiple options for short and long term financial planning.
When you quarrel, you are at the mercy of the court. You are on schedule. You can move at your own pace when you opt for a collaborative divorce.
This type of low-drama divorce has even more advantages:
It is more efficient. (You and your spouse pay less in taxes.)
You are in the director's chair. Leaving your financial future to a judge is a more passive approach. As for your money, wouldn't you rather stay in control?
Aim for a healthy and fair division. Both sides agree on transparency and begin by signing a collaborative law agreement and agreeing not to go to court. Both sides agree on which documents or information should be shared. (If each of you is conducting separate investigations into each other's finances, it will cost you both – double, even triple!)
It does not involve the aeration of dirty laundry in a courtroom or on a public written documentation.
A divorce therapist / teacher ensures that everyone is listened to and that the emotional needs of both parties are met.
Prepare for the long haul
Overcoming divorce – emotionally – takes time. Financial recovery from divorce also does. Even at best, both ex-spouses leave with less than they had as a couple.
I encourage my clients to have a long-term mentality on wealth reconstruction or debt settlement. Some financial planners claim that it may take two to four years to recover the money lost in the event of a divorce.
Having a divorce without a courtroom prepares you faster for what comes next. The less hostile your divorce is, the more emotionally you are ready for post-divorce life. The cheaper the divorce, the more you will have to start that new life.
Tax planning is an important part of divorce. Did you know that foods are no longer taxable for the person who receives them or a deduction for those who pay them? A tax advisor can help you understand what it means in your case. Sometimes the unthinkable – bankruptcy – must be considered as a financial planning tool. Other considerations:
How old are you? How close are you to retirement? How long does it take to start withdrawing retirement savings?
Who keeps the house or sell it? If you keep it, is it better to repay it quickly or repay it slowly over time?
Does mortgage interest make much difference?
Is now a good time to resize?
When examining your finances, look at both your credit reports and get answers to the following questions: What is the title in your name compared to the spouse's name? Which accounts do you own together and jointly? Whose name is it in the 529 children's school savings plans? Where's the safe deposit box?
If you had stayed home during your wedding, will you have to go back to work?
Returning to work is often a frightening proposition for those who have not worked for years or even decades. But it can be essential in order to increase your savings. You can make a fine in paying off debts – or rebuilding your savings – even with a job that is outside of your education and career. Don't underestimate the power of a small, but constant paycheck. And consider the benefit packages offered if you get back to work. For example, Starbucks also offers health services for part-time employees and may also offer a refund of school fees.
See also: Return to the workforce after raising children?
Take ownership of your finances
If you've been the spouse who was least (or not at all) involved in family finances, now is the time to step up. When people are involved in their family finances, they recover more quickly after divorce, according to a 2020 study on "Divorce and Money" by Fidelity Investments.
"Take ownership" doesn't mean you should go alone and go to court. The study also suggests that "mutual involvement" is the key to a "successful divorce". Both sides should be equally involved in decoupling, which includes the separation of finances.
If you've never done this before, start keeping track of household expenses. Are there areas where you could tighten? Pay attention to the details, keeping track not only of the purchases by the merchant, but of what has been purchased.
Not all real life love stories have a fairytale ending. But divorce doesn't have to be acrimonious. Your wedding story may be different from the com-rom movie you originally imagined, but you can write your own sequel. And it could be a big hit.
See also: Divorce? Avoid these 2 tax traps
Tonya Graser Smith is a certified family law specialist, licensed North Carolina attorney and founder of GraserSmith, PLLC, in Charlotte, NC. It focuses on its practice in divorce, child custody, child support, alimony, fair distribution, premarital agreements and other family law matters.
Comments are deleted in accordance with industry guidelines. Click here to learn more and read other articles by the author.
This article was written by and presents the views of our consultant, not the Kiplinger editorial staff. You can check the consultant records with the SEC or FINRA.