I’m not an attorney, but as a Harvard MBA and financial planner, I am well-versed in how finances affect all aspects of our life, especially marriage and divorce. Here is my opinion on what you should (and shouldn’t) do to help minimize the financial damage of a divorce.
Don’t think of it as "winner takes all."
Divorce is big business in the United States—even bigger than the wedding industry, according to many estimates. With a system that pits spouse against spouse, it can feel like a battle in which the "winner" takes all. The traditional litigation route is potentially costly, with lawyers getting paid by the hour to assist.
Do know that there are less costly options than traditional litigation.
You can use one of four forms of alternative divorce resolution: 1) working it out on your own (and having a lawyer draw up final details), 2) mediation, 3) collaborative divorce or 4) formal arbitration. These alternative methods encourage both parties to find harmonious win-win solutions at a fraction of the financial (and emotional) price.
Don’t involve any more professionals than you really need to.
Beyond divorce attorneys, there are plenty of professionals out there who make good money on bad divorces, such as accountants, therapists and realtors, to name just three. Then, of course, comes the added expense of moving from one joint household into two separate ones. While itʼs important to seek advice and guidance from a range of experts during this period of turmoil, do your best to select wisely and keep an eye on expenses, which can really add up.
Do involve your financial advisor early on in the process.
Just as financial advisors aren’t trained to give legal advice, lawyers are not trained to give financial advice. This is why you do want to get your financial professional involved. Financial experts will better understand certain nuances, like not all assets are equal. For example: A dollar in a traditional IRA is not equal to a dollar in a Roth IRA—due to the differing tax treatments of both. Having a financial advisor help you identify exactly what household assets you have to split, assist you in creating a new post-divorce budget and serving as a resource for financial questions that arise during the negotiation, can be invaluable.
Don’t let the little things fall between the cracks.
Your divorce decree should state who is responsible for what, down to the minutia of who pays off that joint cable bill. Even if you trust everyone to honor their debts, these little things might simply get forgotten amidst the bigger concern of divvying up the marital assets. Don’t make any verbal agreements; make sure there is a clear system in place for what steps are taken and gather proof. I have seen little things fall between the cracks in a divorce, only to come back later and bite someone in the behind. In the case of one divorcee I know, a couple of outstanding dollars left on a credit card statement ultimately went into collections and hurt her credit score. All caused by the honest error of forgetting to pay it off.
Do think long and hard before insisting on keeping the house. A classic divorce mistake from a financial perspective is insisting on keeping the house for the sake of continuity for the children. However, houses are expensive. Unlike other assets such as retirement accounts, this is an asset that requires continual payments: property tax, insurance, upkeep, maintenance—and often a mortgage. Make sure you carefully think through whether you can truly and comfortably afford the home, with the altered income level you will have post-divorce.
The last thing you need during this stressful time is to compound that stress by trying to maintain an asset that is more expensive than your income can afford. Sadly, not all marriages end happily ever after, and ending one can become the only available choice. But divorcing spouses do have a choice over what process to follow, and the more peaceful route tends to be the less expensive one for both people involved.
The TIAA group of companies does not provide tax or legal advice. We suggest that you consult with your tax and legal advisors about your personal circumstances.