You are getting divorced! After the emotional decision is made you must address financial situations impacting the family breakup.
What are the major financial pitfalls of a divorce? Are you prepared to stay on top of all financial problems and decisions in this divorce to strive for a financial win-win situation?
Where’s the liquid cash? Divorce generally never goes as fast as you would like nor do you receive as much as you think you should! If divorce is imminent start saving up money now! You will need to pay divorce expenses and have support for your new household. There will be many unanticipated costs that may drain you financially.
- If you don’t have a credit card in your name get one now. If you share credit with your spouse, close out as many credit cards as possible if he/she can charge on your credit. Even if you don’t use the cards, the account balance will still be owed and both spouses may be legally responsible for the debt.
Not Prepared for this Divorce? Divorce is a serious change of life event. Get Prepared Now! Timing is all important! When is the best time for you to get divorce? Make sure your financial situation is good before you take the divorce leap. Need new tires, buy them. Kids need dental work, see the dentist. Just remember: after the separation, your expenses will be paid by court order and not always be to your liking.
Where are the important divorce financial records? Don’t leave without all your documents that identify what you and your spouse accumulated during your marriage and which can establish the fair market value! Even if you were not in charge of finances while you were married, you must secure copies of all records. You are entitled to your share of financial property and any additional income you find may increase the earnings that calculate child support or spousal maintenance support. What are you looking for? At least three years of tax returns, mortgage paper on your home, wills, trusts, bank, credit card, and financial statements, car registrations and titles, insurance policies, and deeds to real estate. If you have separate property from inheritance or gifts from your family, make sure you have all records of these transactions. Our blog, Texas Financial Checklist http://dld.bz/dqcej is a detailed list of items and records needed to have before filing for divorce. A very good item to use for your preparation!
Have you overlooked any Divorce Assets? If a business is involved a forensic accountant may be hired to look of any signs of additional income or overstated expenses.
- Hobbies and side businesses that use expensive equipment or generate income needs to carefully be looked out. Are you entitled to compensation for expenses you paid to get your spouse through school?
- All assets, big or small can add up. These assets can always be used for trade on something you can use.
- Your spouse may try to hide assets. By keeping all documents and paystubs to make sure there are not any irregularities, things usually work out fine. Stay honest and reveal your assets.
Do Not Ignore Tax Consequences! Divorce may or may not create taxable events but you must report it on your tax return. Should you sell the house now to claim the capital gain exclusion? Who should be paying the mortgage until it sells? Should you take your spousal maintenance monthly or in a lump sum? What about retirement funds? An accountant can help to determine the best path for you on these questions.
Passive Observer of your Divorce? NO! Get control of this process, focus on practical things and work with your future Ex to get this divorce over! You can do this! There is a reason for this divorce and you are the master/mistress of your destiny. Your children need you now to be a responsible parent and wise decision making will save you time and legal fees. Listen to your attorney but you make the decisions!
Is Divorce your survival plan? Now that you have decided to divorce you must break it to your children. People engaged in a Divorce should be in survival mode. The person who will be your future “EX” is looking out for themselves and you need to look out for yourself and your children. YOU must insist within reason on getting what you need and deserve! Emotions and money do not mix! You must be able to take care of yourself and your family financially so look at all property division decisions very carefully and make good decisions to bring the divorce to a successful conclusion.
Prepare for the worst! When entering into a divorce, prepare yourself for the worst! If you are prepared for anything, than your fears will not cause you to panic and you will keep control of your situation. Outside of death, divorce is considered one of the worst emotional situations that a human being will ever experience!
How will you support yourself and the kids after divorce? Hopefully this is not a problem, but now would be a good time to get some career counseling at a community college, university or local job center. Having a fulfilling career is lucrative and helps your self-esteem!
Get Good Advice! Decisions you make now will affect the rest of your life. Find a good, knowledgeable attorney to help you though the rough spots. If you are emotionally a wreck, find a good therapist. If you feel there are hidden assets, hire a forensic accountant. Now is the time to get the best advice you can afford! You will have to live with your financial decisions for a long time.
So you have now decided to divorce. You know it will be painful & scary, but you believe the time is right to have a single life. Financial vulnerability and risks are inevitable.
Every year, approximately three million men and women head down the emotional and financial path of divorce. Following a divorce the cost is usually 25-50% more to maintain your pre-divorce lifestyle. A single household becomes twice as expensive as each spouse losses the benefit of the other spouses income. Economic discrimination due to gender gaps place additional financial burdens on women. A woman’s standard of living may drop 27% while a man’s standard of living may increase 10%!
Now start with the financial basics in surviving your divorce! What are the basics?
A secure place to live
Create little or no debt
Protect retirement assets or income
Use of liquid money or assets
The most important of these basics is Liquid money! You will need money to find a place to live and hire an attorney. You will also need money to pay your expenses during your divorce. Liquidity will definitely come in handy and enhance your position in the proceedings.
What about Debts? If possible pay off your debts now. The uses of savings or assets you can liquidate are the cleanest methods. Many divorced people find themselves responsible for their EX’s portion of debt since the exiting spouse refuses to pay. Legally, you may be responsible if your ex-spouse does not pay. Try to start your new life free of debt and with a new sense of self confidence!
What about Cash Issues and Retirement Assets in a Divorce? If you and your spouse have retirement savings, each of you will probably be entitled to a one-half share or a portion based on a fixed ration of the number of years married and number of years of investing. This money could be kept for retirement or used to repay other current expenses or debts. Make sure you examine prospective tax treatment to avoid the 10% penalty on early withdrawal by the IRS.
Some tax questions to know about:
Are spousal maintenance payments tax deductible?
Who will be able to claim Head of Household status?
Who gets the tax exemption for the kids?
Is child support non-deductible?
Which Attorney fees are tax deductible?
Always remember to “Look at the big picture”. Keep your focus on finances and parenting. If you need help from smart professions, as your attorney, accountant, or mental-health professional, get it now! They will help you and your family with focus, objectivity and a long-term vision that is very difficult for you during this tumultuous time in your life. Now you need to be able to articulate you needs and goals for the future.
Do not forget! This time too shall pass and you may be, with planning, better than ever in the future!
Preparing for a Texas Divorce: Assets
Going through a Divorce is painful no matter what the circumstances. Before you get into the Texas Divorce Process, reduce expense, stress and conflict by making sure you are financially prepared. Planning ahead helps you in making sound decisions, start preparing for post-divorce life, and avoid many post-divorce pitfalls. Below is a list of items you need to gather before counseling with an attorney. Financial Documents are a must to show what your true assets and liabilities are in the marriage.
- Tax Returns (at least three years) or Tax Liens and all IRS related documents
- Wills and Trusts with all attachments reflecting corpus and trust holdings
- Listing of all liabilities (including mortgages, credit card debt, personal loans, automobile loans, etc.):
- Name of entity, address and telephone number
- Account number
- Amount owed
- Monthly payment
- Property securing payment (if any)
- Most current statements and account status of lenders
- A Listing of all Real Property, address and location, including (includes time-shares and vacation properties):
- Deeds of Trust
- Notes including equity loans and second liens
- Legal Descriptions
- Mortgage Companies and Loan Servicers (Name, Address, Telephone Number, Account Number, Balance of Note, Monthly Payments)
- Current fair market value
- Motor Vehicles (including mobile homes, boats, trailers, motorcycles, recreational vehicles; exclude company owned):
- Name on title
- VIN Number
- Fair Market Value
- Name of creditor (if any), address and telephone
- Persons listed on debt
- Account number
- Balance of any loan and monthly payment
- Net Equity in vehicle
- Cash and accounts with financial institutions (checking, savings, commercial bank accounts, credit union funds, IRA’s, CD’s, 401K’s, pension plans and any other form of retirement accounts):
- Name of institution, address and telephone number
- Amount in institution on date of marriage
- Amount in institution currently
- Account Number
- Names on Account
- Company loans and documents related to benefits
- A listing of separate property (property owned prior to marriage, family heir looms, property gifted, inherited property):
- Records that trace your separate property. These assets will remain yours if properly documented
- Retirement Benefits:
- Exact name of plan
- Address of plan administrator
- Starting date of contributions
- Amount currently in account
- Balance of any loan against plan
- Publicly traded stock, bonds and other securities (include securities not in a brokerage, mutual fund, or retirement account):
- Number of shares
- Type of securities
- Certificate numbers
- In possession of
- Name of exchange which listed
- Pledged as collateral?
- Date acquired
- Tax basis
- Current market value
- If stock (date option granted, number of shares and value per share)
- Stock options plans and related documents
- Insurance and Annuities Policies and Inventory:
- Name of insurance company
- Policy Number
- Type of insurance (whole/term/universal)
- Amount of monthly premiums
- Date of Issue
- Face amount
- Cash surrender value
- Current surrender value
- Designated beneficiary
- Other policies and amendments
- Closely held business interests:
- Name of business
- Type of business
- % of ownership
- Number of shares owned if applicable
- Value of shares
- Balance of accounts receivables
- Cash flow reports
- Balance of liabilities
- List of company assets
- Possible hobbies or side businesses that generate income
- Mineral Interests (include any property in which you own the mineral estate, separate and apart from the surface estate, such as oil and gas leases; also include royalty interests, work interests, and producing and non-producing oil and gas wells:
- Name of mineral interest
- Type of interest
- County of location
- Legal description
- Name of producer/operator
- Current market value
- needs leases or production documents related to the asset
- Money owed by spouse (including any expected federal or state income tax refund but not including receivables connected with any business)
- Household furniture, furnishings and Fixtures
- purchase documents
- Electronics and computers including software and hard drive
- Antiques, artwork and collectibles (including works of art, paintings, tapestry, rugs, crystal, coin or stamp collections) Other large collections need to be appraised! (Guns, quilts, action figures, books)
- Miscellaneous sporting goods and firearms
- Jewelry including appraisals
- Animals and livestock
- Farming equipment
- Club Memberships
- Safe deposit box items
- Burial plots including documents of ownership
- Items in any storage facility
- Travel Awards Benefits (including frequent flyer miles)
A regrettable truth in family law often finds one parent unilaterally removing a child from the other parent while dissolving a marriage without any grounds or evidence of wrongdoing. Not surprisingly, disturbing numbers of children are routinely separated from loving, responsible parents for reasons that have nothing to do with their wishes, safety, health, or welfare and many times have to do with a lack of proper legal counsel.
In 50% of the marriages that end in divorce, 80% of these are over the objection of one spouse (close to 100% when children are involved). I am sure you have heard about “custody battles,” but you probably do not know that many start out with one parent taking a child from the other and refusing visitation until a court orders possession sometimes months down the line. You have heard about the witch hunt for “deadbeat dads,” but did you know that many of these fathers are well educated men who have lost their jobs due to a downtrodden economy and still love their children and want to play a leading role in their lives and upbringing. You have heard the hysteria over “child abuse,” but did you know that many accusations against fathers are shown to be false and used by one parent as a weapon to alienate the children from the other parent.
David Popenoe in his book “Life Without Father” tells us that negative consequences of fatherlessness are all around us. Evidence indicating damage to children growing up in fatherless homes has accumulated in near tidal-wave proportions. Fatherless children experience significantly more physical, emotional, and behavioral problems than do children growing up in intact families.
Children from fatherless homes are:
- 5 times more likely to commit suicide
- 32 times more likely to run away
- 20 times more likely to have behavioral disorders
- 14 times more likely to commit rape
- 9 times more likely to drop out of high school
- 10 times more likely to abuse chemical substances
- 9 times more likely to end up in a state-operated institution
- 20 times more likely to end up in prison.
(Information from Mark Hall, Father’s Manifesto).
In “My Rewar, My Punishment…My Son, Sons of Divorce,” Steven Manchester describes the situation many dads are dealing with when exercising visitation:
“I’d take my son for our court-ordered visits, only to drop him off two hours later, so another man could bounce him off his lap. Ironically, each new boyfriend was given all the time he wanted with my son. At first, it killed me, but I decided, “Whatever’s best for my boy. His happiness must come first!” Though it stung terribly, that attitude sustained me all the way to Christmas.
I waited in my old driveway for 4 excruciating hours, while three inches of snow muffled the screams from the cab of my truck. When they finally pulled in, my ex-wife snickered, “I must have lost track of time?” and handed over my son. I was livid! My boy was dead tired and half-asleep. And the EX…well…she just grinned, confident that there was nothing I could do about it. It took everything I had left to conceal my tears. I didn’t plan to give her anything for Christmas and was doing my best to stick to the plan.”
It is a sad scenario.
In divorce court, many fathers are left feeling that everything they have done, years of hard work, years of tender love, years of unstinting devotion to their family and children count as nothing.
In the 1960’s women fought hard to get laws passed to protect them against family violence, stalking and sexual harassment. The shame is that women of the 1990’s now use these same needed and appropriate laws wrongfully to their advantage and feel justified in punishing their spouse for wrongs they feel have been done to them by misusing the legal system; and in the process erase fathers from the lives of their children!
The facts are that many times the courtroom becomes a legal battleground. Inadequate counsel or absence of counsel can result in decisions that negatively affect children and the family for years to come.
Texas law requires trial courts to divide the estate of the parties in a manner that is just and fair having due regard for the rights of each party and any children of the marriage. Tex. Fam. Code Ann. 7.001. A disproportionate division must have a reasonable basis. Smith v. Smith, 143 S.W.3d 206, 214 (Tex. App. – Waco 2004, no pet.). The trial court has broad discretion in determining the disposition of property in a divorce action. If there is some evidence of a substantive and probative character to support the division, the trial court does not abuse its discretion if it orders an unequal division of marital estate. However, the division should not be a punishment for the spouse at fault. There is a difference between making a just and right division of the property with due regard for the children of the marriage and punishing the errant spouse. In general, the trial courts in Texas have perceived this distinction.
Generally, in a fault-based divorce, the court may consider the conduct of the errant spouse in making a disproportionate distribution of the marital estate. Young v. Young, 609 S.W.2d 758, 761-62 (Tex. 1980). This does not mean that fault must be considered.
The Texas Family Code sections 3.02 and 3.07 provide six circumstances when a divorce decree may be granted in favor of one spouse. These include the traditional fault grounds for divorce of cruelty, adultery, and abandonment. These sections were codified by the Legislature into the Family Code along with section 3.01 which provides for “no-fault” divorce based on insupportability because of discord or conflict of personalities that destroys the legitimate ends of the marriage relationship and prevents any reasonable expectation of reconciliation.
Texas courts have considered the following factors when equitably dividing a community estate:
- fault in breakup of the marriage;
- the benefits that the innocent spouse would have derived had the marriage continued;
- disparity in the spouses’ income and earning capacities;
- each spouse’s business opportunities;
- differences in the spouses’ education;
- physical health and need for future support;
- the relative ages of the parties;
- each spouse’s financial condition and obligations;
- the size of each spouse’s separate estate and any expected inheritance;
- the nature of the spouses’ property;
- the rights of the children of the marriage;
- waste of community assets or constructive fraud against the community;
- gifts by one spouse to the other; and
- tax liabilities.
The court need not divide the community estate equally. Smallwood v. Smallwood, 548 S.W.2d 796, 797 (Tex. Civ. App. – Waco 1977, no writ). The court has a broad discretion in making a just and right division, and absent a clear abuse of discretion, such decision will not be disturbed. Murff v. Murff, S.W.2d 696, 698-99 (Tex. 1981); Boyd v. Boyd, 131 S.W. 3d 605, 610 (Tex. App. – Fort Worth 2005, no pet.)
When there is no evidence or insufficient evidence to support the property division or an award of attorney’s fees, the appellate court must reverse or remand such decision for a new trial. Sadone v. Miller-Sadone, 116 S.W.3d 204, 208 (Tex. App. – El Paso 2003, no pet).
A party who seeks to assert the separate character of property must prove that character by clear and convincing evidence. Clear and convincing evidence is that measure or degree of proof that will produce in the mind of the trier of fact (judge or jury) a firm belief or conviction as to the truth of the allegation.
In a popular decision Phillips v. Phillips, 75 S.W.3d 564 (Tex. App. – Beaumont 2002, no pet.), Chief Justice Walker opined that because legislature has now authorized “no fault” divorce, fault could no longer be considered in dividing community estate. However, In Re Brown, 187 S.W.3d 143, 2006 Tex. App. LEXIS 686 (Tex. App. Waco 2006) states that what is “just and right” in dividing the property should not depend on the ground on which the divorce is granted; the just and right division of property is separate from the dissolution issue. If one spouse’s conduct causes the destruction of the financial benefits of a particular marriage, benefits on which the other spouse relied, a trial court should have discretion to consider that factor in dividing the community estate – regardless of the basis for granting the divorce.
To prove a disproportionate division of assets in a divorce case, counsel must put on clear and convincing evidence. Without such support, there will be no disproportionate division of community estate. The circumstances of each marriage dictate what factors should be considered in the property division upon divorce.