During a divorce, you’ll be faced with many decisions that may affect your financial security. This article outlines the most common financial mistakes divorcing spouses make and provides tips on how to avoid them. You may feel comfortable dealing with some of these issues on your own, but with many of them, it’s crucial that you find good financial advice from a qualified professional.
1. Ignoring or underestimating your expenses. Most people know exactly what they earn each month, but can’t explain where their money goes. Take the time to write down all of your expenses, and develop a realistic monthly budget. Likewise, consider the cost of your future living expenses, taking inflation into account. If you ignore inflation, you may underestimate your future needs and find that you’re not able to maintain your quality of life.
2. Believing that the parent with more custodial time should keep the family home. It’s often a very emotional decision whether to keep the family home, especially when children are involved. While it would be nice to remain where you’re comfortable and avoid the hassles of moving, staying put might not be the best financial decision. No matter how attached you are to your home, it’s critical to have a realistic sense of whether you can afford it. If you give up everything else in order to keep the home, and then find that you can’t cover the mortgage, property taxes, and maintenance, you may end up in serious financial trouble.
3. Assuming that an equal division is a fair division of property. Be sure you understand that an asset’s value is not necessarily defined by or limited to its current market value. For example, assets that generate income (like rental property or bonds) may be worth more than their market value. Agreeing that each spouse will receive property of equal monetary value doesn’t always mean each spouse will receive a truly equal share of the assets over time. Make sure you’re comparing apples to apples when you trade assets in a divorce negotiation, and pay attention to tax basis, present value, and transaction costs.
Learn more about this issue in Divorce & Money, by Violet Woodhouse with Dale Fetherling.
4. Deciding financial issues one at a time. By looking at each asset or source of income separately, you miss the interaction of taxes, capital gains, investment losses, timing issues, inflation, and more. A fair settlement begins by looking at a comprehensive picture of all of your finances. Once you’ve done that, you’ll be better able to understand how each financial decision you make may affect another decision, and determine how and when to divide assets.
5. Failing to secure spousal support (alimony) and child support payments with insurance. Your ability to collect alimony and child support is only as good as your spouse’s ability to pay. You can request that your spouse obtain disability and life insurance policies (or modify existing policies) to ensure that these payments will continue in the event of your spouse’s disability or death. Be sure to review the policies to make sure your spouse has made the proper designation(s). Understand that these policies won’t help you in the event of your spouse’s voluntary decision to stop paying. To enforce your rights in this situation, you’ll need to go back to court and ask for an order that your spouse make the appropriate payments.
6. Not understanding your liability for unsecured debt. For most people, unsecured debt means consumer credit card debt. In most cases, if the debt was incurred during the marriage, it’s a shared liability no matter which spouse used the credit card. When you settle your divorce, you’ll divide responsibility for those debts. But don’t assume that the credit card companies care what your settlement says – they can still come after both of you for payment. The best practice is to pay off all debts before the divorce becomes final.
7. Not evaluating a defined benefit pension plan correctly. A defined benefit plan (DBP) is a true pension plan—it’s funded and controlled by the employer, and pays a monthly income at retirement. (This is different from a defined contribution plan, such as a 401(k).) Even though the employee has to wait until retirement to receive payments, the DBP has value today, and the non-employee spouse is entitled to a share of that value. In most cases, you’ll need to hire an actuary – a specially trained financial expert – to calculate the present value of DBPs.
8. Overlooking a Qualified Domestic Relations Order (QDRO). A Qualified Domestic Relations Order (QDRO) is a legal document that reflects how you and your spouse have decided to divide a defined contribution plan (eg., 401(k), 403(b), and 457 plans) or a pension plan. A QDRO also orders the plan administrator to pay the non-employee spouse his or her agreed-upon or court-ordered share. The plan administrator cannot make such payments without a valid QDRO in place. Even if you’re dealing with a pension that may not be payable for several years, it’s crucial that you get the QDRO in place as part of your divorce, or you may lose important pension rights.
9. Having unrealistic expectations about investment returns. If your spouse is trying to convince you to settle for a certain investment because “It’s going to grow at 30 percent per year,” you might want to get a professional opinion. That investment might not grow at all, or it may yield negative results. Liquid assets (cash or assets that can be easily converted into cash) may provide more financial security than investments, many of which may be risky. Think twice before accepting investments in lieu of safer, less risky assets.
10. Failing to consider your long-term financial security. If you focus only on the immediate task of splitting assets and getting alimony and child support, without understanding how things might look in 10 or 20 years, you’re doing yourself a great disservice. You might want to hire a financial planner to review any proposed settlement agreement (before you sign it) and advise you about the long-term financial consequences.
Divorce is not the easiest to get through. From the emotional turmoil and splitting of assets – to pensions and businesses, there are many factors to consider, especially if a prenuptial agreement was not signed prior to getting married.
Family law attorney Kirk Stange touches* on all the factors we should consider when splitting up in divorce: from pensions to hidden assets, he uncovers what your attorney should be doing to help you.
Military Family Law
What is the Servicemembers’ Civil Relief Act and how does it relate to military personnel and divorce?
The Servicemembers Civil Relief Act (SCRA), formerly known as the Soldiers and Sailors Civil Relief Act (SSCRA), was enacted in 2003 and significantly expanded the protections provided to people entering the military, called to active duty and deployed service members. Many of the provisions in the SCRA can be applied to protect the rights of service members who are going through a divorce or family law matter. The key protections the SCRA provides to service members going through a divorce are as follows:
In the context of a family law matter, if a default judgment was entered against a party and the outcome negatively affected somebody because they were not present to defend themselves in the action, the court has the authority to reopen the matter.
If a party is deployed and cannot be present for the proceedings to defend themselves, the proceedings can be postponed, or stayed, until they return. This can be especially important when issues like custody need to be resolved.
The reality is that to get divorced in most states in the United States, cheating or marital misconduct does not need to be proven.
Divorce and Separation
In order to ensure the divorce process goes as smoothly as possible, how should clients prepare for what may be contested divorce matters?
It is critical that a party hire an attorney who has experience in contested divorce matters. If the case cannot settle prior to trial, having an attorney who has significant trial experience is vitally important. After the attorney has been selected, it is crucial that parties give their attorneys all the necessary information as early as possible in the process. This can include providing all the documents and evidence that the client feels are potentially important in the case, including financial information from tax returns, account statements, deeds, estate planning documents and anything else that can have a bearing on property and debt division, spousal support and child support. However, if custody is at issue in the case, it can also be critical to provide all the information that a party thinks is important in terms of their custody request as well. This can include school and medical records and a litany of other information.
The use of private investigators is generally on the decline with the advent of no-fault divorce.
How are allegations of cheating and marital misconduct handled? Does proving marital misconduct make a difference?
The reality is that to get divorced in most states in the United States, cheating or marital misconduct does not need to be proven. A party typically only has to show that the marriage is irretrievably broken and that there is no reasonable likelihood that the marriage can be saved. However, some states still will consider marital misconduct as one of the factors as it relates to property and debt division and spousal support (previously known as alimony). For example, where I am licensed, in Missouri and Kansas, the conduct of the parties during the marriage is a factor that the court can look at in property and debt division and spousal maintenance. However, in Illinois, where I am also licensed, the courts do not consider marital misconduct as a factor for property and debt division and spousal maintenance. Having said that, there are some cases where marital misconduct could have a bearing on the best interests of the children for the child custody portion of the case.
If a party fears for their safety in a divorce or family law matter, it is important that an attorney act quickly to protect their client.
In divorce and family law matters, would you advise clients to hire a private investigator?
The use of private investigators is generally on the decline with the advent of no-fault divorce. While courts in some states can consider marital misconduct for property and debt division and spousal maintenance, many courts are hesitant to give it much weight. However, there are still some cases where parties do opt to hire private investigators to:
Prove marital misconduct and/or adultery;
Show unsafe or harmful practices relative to the best interests of the children;
Serve crucial witnesses and opposing parties’ summons/subpoenas as a special process server;
Identify hidden financial and other assets;
Conducting surveillance; and/or
Substantiate untrue statements about income and employment.
If the other party violates the Order of Protection or Restraining Order, they can often be charged criminally.
What factors impact how marital property and debt is divided in divorce?
Equitable division is how most states divide marital property and debt in divorce. Marital property and debt are all property or debt accumulated during the marriage. Separate property, which is not divisible in a divorce, is property that was obtained prior to the marriage or property that was obtained by gift, inheritance or that is set aside in a prenuptial or postnuptial agreement. Factors most courts look at in dividing marital property and debt are:
The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse having custody of any children;
The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker;
The value of the nonmarital property set apart to each spouse; and
Custodial arrangements for minor children.
Some states, as I mentioned previously, will also look at the conduct of the parties during the marriage, while others do not.
In these cases, the court is going to take the value of the business interest into consideration when dividing all marital property and debt.
How should cases be handled if there is domestic abuse? How do you handle these cases differently, especially if your client fears they could be in danger?
If a party fears for their safety in a divorce or family law matter, it is important that an attorney act quickly to protect their client. Laws can vary by state and the exact verbiage can be a little different. However, generally, parties will want to seek an Order of Protection to prevent the abuse. In some states, this is known as a Restraining Order. If the other party violates the Order of Protection or Restraining Order, they can often be charged criminally.
There are lots of variables that go into the valuation of a businesses’ interest and a professional business valuator is almost always needed.
Business Interests
Protecting your business in divorce: Can you refuse to split your company’s assets?
If the business interest was obtained during the marriage, in an equitable division state, the business interest is going to be treated as marital property unless there is a prenuptial or postnuptial agreement that sets it aside to one party. In these cases, the court is going to take the value of the business interest into consideration when dividing all marital property and debt. In some cases, the value of the business interest can be offset against other assets that the other spouse receives, like a home, investment or retirement account, as some examples. In these cases, the business interest does not have to be split. The other spouse just receives another asset of roughly the same value. However, in other cases, this might not be possible and the business interests may need to be split or sold. Regardless, what is critical in these cases is to have a business valuator enlisted early in the case to ensure that the value of the business is fair and accurate. There are lots of variables that go into the valuation of a businesses’ interest and a professional business valuator is almost always needed.
Where a party owns and operates a business, the risk can also increase because income and assets can often be shielded within the business.
What are the signs your partner could be hiding assets?
Every case is different and the signs are not always uniform. However, in cases where one party has almost complete control over the finances, this can increase the risk of hidden assets. In some cases, both spouses might not have access to all the financial records. One spouse might also set up bank accounts in their own name. If a spouse travels overseas, the risk can often increase. Where a party owns and operates a business, the risk can also increase because income and assets can often be shielded within the business.
Private investigators can also help locate and identify hidden assets.
How challenging is it to prove that your partner is hiding assets?
Experience has taught us that finding hidden property can be challenging. To do so, we often involve forensic accountants. These professionals review tax documents and other financial records to locate hidden assets or to exonerate a party depending on the situation. Private investigators can also help locate and identify hidden assets. With the advent of social media evidence, oftentimes, the evidence of the hidden assets can be found online. Another way to locate hidden assets is through the use of a computer forensic expert who can lawfully gain access to electronic devices to search for evidence of hidden assets.
A prenuptial agreement can help a party protect their pension interests.
If proven, how can the above impact a divorce proceeding?
If a party hides assets, it can have a tremendous impact on the proceedings. First, it can destroy the party’s credibility with the judge. This can impact all facets of the case. Second, hiding assets is also illegal and could subject a party to civil or criminal penalties for being untruthful with the court. Finally, it can also result in that party giving up a disproportionate share of the assets they were hiding and that party having to pay the other spouse’s legal fees and costs for having to track down these assets.
his means that both parties need to have separate legal counsel.
When should one consider hiring a forensic accountant?
There are many cases where a party should consider hiring a forensic account. Some common situations are as follows:
Identifying income from a closely held business or professional practice to see if any of it has been concealed or transferred elsewhere;
Determining if assets have been squandered, encumbered, concealed or hidden in anticipation of divorce proceedings;
Helping trace funds owned prior to the marriage to determine if it is separate property and, therefore, belong to one spouse alone; and
Helping valuate a business interest.
More parties are seeking to resolve their divorce and family law matters outside of court. Many parties try mediation.
Pension Sharing
How is a pension split during a divorce?
A pension is divided in divorce just like any other marital asset in an equitable division state. The first question is whether the pension interest accumulated during the marriage? If so, the marital portion is divisible in divorce. Typically, the division is implemented through the use of a Qualified Domestic Relations Order (“QDRO”).
Are there ways for clients to protect their pension or retirement assets during divorce?
A prenuptial agreement can help a party protect their pension interests. The key is that the prenuptial agreement would need to be completed before the marriage and in a matter that is procedurally and substantively fair. This means that both parties need to have separate legal counsel. The prenuptial agreement also has to be entered into freely, voluntarily and without undue influence or duress. Both parties also have to engage in a full and fair disclosure of their assets and debts. Past that, and if there is no prenuptial agreement, if a portion of the retirement assets were accumulated prior to marriage, this can often be traced by a forensic account.
Alternative Dispute Resolution
If parties can settle their divorce outside of court, data shows that parties are more apt to comply with a settlement agreement versus a court order.
Is alternative dispute resolution growing in prominence in divorce and family law matters?
More parties are seeking to resolve their divorce and family law matters outside of court. Many parties try mediation. Mediation can be voluntary or some courts can order parties to participate in mediation. Other parties are trying collaborative family law. In collaborative family law, each party hires a collaborative lawyer on a limited scope representation agreement where the lawyer can only represent the party in the collaborative process and cannot litigate the matter in court. In the collaborative process, other professionals (divorce coach, financial neutral and child custody professional) work to get the parties toward settlement.
Paternity cases are really on the rise due to increasing out-of-wedlock birth rates.
Do you think parties should try to resolve their divorce or family law matter outside of court?
I do think settlement outside of court is worth the try for parties. If parties can settle their divorce outside of court, data shows that parties are more apt to comply with a settlement agreement versus a court order. This can result in fewer repeat visits back to court. It can also help parties who have kids keep tensions to a minimum so that they can co-parent more effectively with one another.
Besides divorce, what are some of the other most common types of family law cases?
Paternity cases are really on the rise due to increasing out-of-wedlock birth rates. These are cases involving custody and child support between unmarried parents. Next to divorce, these may be the most common type of family law matters. We also help clients with adoptions, guardianships, surrogacy agreements, domestic violence matters and prenuptial agreements and other family law matters.
About Kirk:
Kirk Stange is a Founding Partner at Stange Law Firm, PC, a divorce and family law firm that presently has 20 office locations in the United States in Missouri, Illinois, Kansas and Oklahoma. LawFirm500 has also recognized Stange Law Firm, PC as one of the fastest growing law firms in the United States since 2016. Mr. Stange has been on the list of Super Lawyers for Family Law by Missouri and Kansas Super Lawyers Magazine since 2015.
I once had a child custody case where the opposing party actually hired a hit man to kill my client.
Can you share your most challenging case yet, and how you overcame it?
I once had a child custody case where the opposing party actually hired a hit man to kill my client. While this can add significant stress to the case, it is vital that the safety of the children and everybody else is put at the forefront both civilly and criminally.
What three characteristics are important for a family lawyer?
In addition to educating yourself about the ins and outs of the area of law, it is important that a family lawyer be empathetic in terms of what the client is going through, while maintaining boundaries and leadership at the same time.
What motivated you to practice law?
I really wanted to make a difference in the lives of real people going through difficult times.
Fortunately, there are several steps you can take after a personal injury to prepare you for filing a claim or a lawsuit. Here’s a list of the top ten tips for personal injury claims:
1) Seek out medical attention immediately
If you have been seriously injured, the first thing you should do is to get medical attention. Do not attempt to handle any claims before you have properly addressed your injuries with a medical professional.
You should be aware that failing to seek medical attention after an accident can sometimes reduce the amount of damages you are able to recover. As the injured party, you may have a duty to “mitigate your losses.” This means that you must take steps to ensure that the injury does not cause any further injuries or economic losses.
2) File a Police Report
Filing a police report can help ensure that you have records of important information. This may include the names and contact information of other parties that were involved. Also, the report itself can serve as a record of the important facts involved in the accident. The police report can be used in court if a lawsuit arises.
3) Be aware of what you say at the scene of the accident
While it is necessary to communicate with the other party after an accident, exercise discretion when speaking with other parties. You are under no duty to state whose fault the injury was or to offer additional information. Avoid making statements that might make the situation more complicated, and avoid creating conflicts in relation to the event.
4) Keep accurate records of all costs and expenses related to the injury
These may include hospital bills, medical diagnosis statements, bills related to property damage, and insurance records. You may also need to maintain records of lost wages if the injury has caused you miss work. It’s also a good idea to make a written account of the injury, especially while the events and facts are still fresh in your recollection.
5) Be cautious when dealing with insurance companies
Involving insurance companies can sometimes make the legal process more complicated in a personal injury claim. However, in most cases, working with an insurance company will be necessary to completing your personal injury claim or lawsuit. Be sure to protect your interests when negotiating with an insurance company. It may be helpful to have a lawyer on hand for advice when dealing with third parties.
6) DO NOT sign any forms or documents without understanding them
Make sure you completely understand the terms of any forms and documents to be filled out in relation to the personal injury. Do not sign any forms if you are not sure of how they will affect you in the long run. This includes any forms that may be presented to you well after the actual event. Be especially wary of any documents or contracts that ask you to release the other party from liability, or that require you to forfeit your right to a lawsuit.
7) Avoid trying to settle on your own if you don’t understand what to do
Trying to settle on your own with the other party or with their insurance company can sometimes be a complicated process. If you are unsure of what you are doing, it is best to find some help through the advice of a legal expert. This is especially important if the other party will be hiring a lawyer. Working with your own lawyer can help you avoid costly mistakes that can have negative effects on your claim.
8) Be aware of filing deadlines
Make sure that you file your legal claim or lawsuit in a timely manner. For most personal injury claims, you only have a certain window of time after the accident to file with the courts. This is known as the “statute of limitations,” which can vary depending on the state and the type of accident involved. Once the statute of limitations has expired, you might not be able to file your claim anymore.
9) Do some preliminary research on the legal process
It may be worth your while to familiarize yourself with the basics of personal injury lawsuits in your area. Local rules may vary, and personal injury claims can take some time to fully resolve. While you are not expected to become an expert, speaking with a lawyer for some basic guidelines can help take some of the confusion out of the process.
10) Be aware of what type of lawyer you will need to hire
Remember, not all personal injury lawyers are the same. Some specialize in certain fields, while others handle more general claims. There are many different types of personal injury lawyers, and one may be more suitable for your situation than another.
How Do I Find a Personal Injury Lawyer?
Finding the right type of personal injury lawyer for is critical for the success of your claim. You can find an injury attorney through LegalMatch using our online case-posting system. Working with the right attorney can help you obtain the appropriate legal remedy for your situation, and can help you avoid costly errors during filing.
