Divorce Money Mistakes
How do I protect my money in a divorce?
Starters to Prevent Mistakes.
Know what you personally own and owe. Know your income and expenses. Avoiding money problems starts with a plan that considers your financial goals and resources position after the divorce is final.
The business is often the most valuable asset in a divorce. Whether you are the spouse who owns the business or not, protecting the business income and value is essential to you both.
Print this page to use as a worksheet for your planning.
Safeguard Your Business During Your Divorce. Talking to us early in the decision about business valuation is a smart start. A good start makes a difference in the end. No Company is Divorce Proof. Prudent actions can prevent damage to the company and marital net worth.
For most divorce questions, the many laws and regulations depend on your state of residence. Ask an attorney. Understand the concepts and vocabulary of divorce. When you have the slightest doubt in what you are thinking, ask more questions. Preventing problems should be constantly on your mind. Here are two categories of money questions to get clear with an attorney.
1. What is a marital asset or property?
Understand the difference between “what is marital property (or assets)” and “what is separate property.”
2. How are business and personal assets divided in divorce?
What is equitable distribution of marital property? Is everything Split 50 50 in a divorce? Is a trust protected in a divorce? Can the judge force me to sell the business? Small businesses are not a liquid asset easily sold. How will you settle business debts? How much could you sell the firm for?
A business valuation for divorce is a critical part of a fair divorce settlement agreement.
Starter Questions to Answer. Who owns the business? How is the business ownership held? What is the relationship of the parties to the business operations and ownership? What data and documents of the business are available? Click for your free Best Next-Step.
What the company is worth? Ask us. Your attorney is welcome to call too. We will get you started at no charge. Begin by gathering business facts and documents. Guesses are bad, and lead to costly problems.
10 Divorce Money Mistakes
Divorce is a tedious and cumbersome process. By the time, you sign the final decree so much of your emotional and financial patience is exhausted. Unfortunately, many financial problems will occur after the divorce! Problems you discover after the divorce is final can be very difficult to fix.
Your planning can prevent poor choices. Come to the task strong and determined. You might take an unfair settlement, because you
- didn’t know any better and thought it was a fair settlement; list the pro's and con's and get help
- were emotionally drained and just wanted the divorce to be over with; set a healthy personal and work schedule
- were pressured to accept the settlement by your attorney, your spouse's, or someone else; start thinking about personal emotional support and who might be right for your professional divorce team
- did not know how to negotiate something more fair; take a 'how to' class and start practicing.
Do your homework. We can help with planning. An example is the list below that briefly explains 10 of over 100 mistakes that divorce financial planning could prevent. These observations might not fit to your situation, but are mistakes to check. Get professional advice from at least three sources before taking action. Ask us. We are ready to help with financial planning information for your consideration.
WORST DIVORCE FINANCIAL MISTAKE – THE UNPREPARED START: Filing for divorce and telling everyone before you are well prepared.
CBA’S OBSERVATIONS: The divorce process is a marathon. The first marathon runner died of exhaustion. Preparing a plan prevents similar problems. Getting well prepared will take a few weeks of hard work, and sometimes months depending on the complexity of your circumstances. Your divorce start to finish will take several months, and may be over a year if contested.
Gathering the right data and documents is important to:
- saving your time and money, sometimes large amounts of both
- get as much information and paperwork as possible before you file;
if you wait to gather anything until after filing, you may not be able to get it; in recent years the “discovery” process has become extremely difficult and combative;
while a spouse may be ordered by the court, I have seen cases where nothing was produced and the court made judgments without critically important information.
- protecting yourself financially; guard your information and documents, identity, and electronics (phones, pads, computers, passwords, etc.; social media and other identity and image materials)
- set your goals and milestones in writing; when reached describe the results and note completed date
- use the correct court or attorney set valuation date for assets; using the wrong date means you must needlessly redo work
- collect, keep, and track (be able to find easily) the right data and documents (Interrogatories-lists of questions, and discovery-requests for documents; Use multiple sources for checklists, we find missing critical items from lists to add. Your 'credit report' is a recent example.)
- build your plan and evaluate your process and progress regularly; coordinate with your professional advisers
- know what you want most and what you might give up in negotiations; make the two lists
- and evaluate your choices based on facts and desired outcomes, not feelings; use the Franklin T of pro’s and con’s to decide
Additionally, if you are in an abusive relationship, seek help.
Get Organized, Get Help Early If Needed
Start a notebook, a filing system with a Table of Contents, a calendar of events and a diary actions taken, inventory of supporting documents, an organized list of questions for your research and meetings, and to-do (your Best Next-StepSM) and done lists.
You must do these things yourself. After over thirty years of divorce financial analysis, the one thing I know for sure that attorneys, accountants, and others are very poor record keepers. You may need to supply the same documents several times to the same person. You must be ready to send a complete digital set of your documents at the drop of a hat. Create and maintain a Table of Contents listing your documents (and those needed) to include. Avoid using physical copies. They are too hard to keep organized.
Digital and scanned copies are helpful. Take photos of assets. Thumb-drives are portable, small, and can keep work out of the computer and home. Cloud storage is good, but many attorneys and other advisers need tech help to access them. Back up and password protect. Protect the materials in a new personal bank lock box at a new bank. You may also want to consider a post office or other mail service to protect you mail.
Set an appointment with yourself to work your plan. There’s a lot to do.
Get organized secretly. Be ready before anyone knows. I have never seen two divorce situations just a like. Your situation is unique. Our planning process works to prepare for your special facts.
When a business is involved, the hurdles go up a great deal. Gathering and organizing marriage and financial documents tops the startup to-do list. You are responsible for gathering data and documents, and completing forms appropriately. Click Business Valuation Documents for the initial business request list.
Your Best Next-StepSM is to work on the several suggestions on this page and on Preparing for Divorce. Make your big mistakes with small amounts of money.
However, when you want more help, you can set a complimentary 20-minute phone meeting as part of the free Divorce Records Check, DRCSM to talk about personal records. Call us at 513-266-3226 for details. All new divorce planning clients start here.
The Divorce Records Check, DRCSM will give you useful financial planning data and document lists to guide better preparation. Our process finds facts others miss. In addition, the Divorce Records Check, DRCSM will help save you time and your attorney’s time answering financial questions.
DIVORCE FINANCIAL MISTAKE 1: Not understanding the tax implications of the settlement.
CONSEQUENCE: Everything will be, or has been, taxed. You cannot escape it. It is only a matter of when. Different assets are taxed by different rules. Not understanding these rules can have a serious impact on the true value of your settlement. For example, Jane gets a 50/50 split, which includes her home. She thinks she received a decent settlement, because real estate seems to be appreciating greater than her husband’s investments. However, when she needs to sell the home later for additional income, she may be taxed on all the gain since the date of purchase. In addition, she will only be able to use half as much of the capital gains reduction because she is now single. This can easily part of her settlement!
DIVORCE FINANCIAL MISTAKE 2: Not understanding the value of retirement accounts.
CONSEQUENCE: As I mentioned above, different assets play by different rules. Retirement accounts are interesting because they typically defer taxation until distribution. However, you often cannot touch them until age 59.5 without tax consequences. Often, the divorcing husband will keep the retirement accounts intact for him, and give the wife a different asset because she needs the income today. However, a divorce financial analyst can show you how retirement accounts can be more valuable than other assets because of the tax-free compounding and investment risks!
DIVORCE FINANCIAL MISTAKE 3: Not considering a portion of the spouse’s retirement accounts in the settlement.
CONSEQUENCE: 401(k)s and other retirement accounts are often among the most valuable assets. They are often tax-deferred, and often the company will match contributions with company dollars! Free Money! Like other retirement accounts, a 401(k) may not be touched until age 59.5 without paying taxes and a penalty.
However, most people do not know the exceptions to the rules. One of which includes divorce! A divorce financial analyst will explain to you how your spouse’s company 401(k) may be split in a divorce, and can show you exactly how much this will influence your retirement dollars years down the road!
DIVORCE FINANCIAL MISTAKE 4: Not reviewing your spouse’s previous financial statements.
CONSEQUENCE: Believe it or not, it is possible your spouse has been hiding assets from you all this time. How can you know for sure? A divorce financial analyst can review your spouse’s tax-returns, bank statements, brokerage statements, etc, from the previous 5 years to find certain patterns of behavior. Rental income, unexplained company expenses, even certain charitable gifts, may lead to hidden assets! Has your spouse’s income changed at all in the past 5 years? Is your spouse due for a raise or bonus at work? It may be possible, especially in smaller companies, the boss may sympathetically defer the raise or bonus until after the divorce!
DIVORCE FINANCIAL MISTAKE 5: Not taking ownership of the Life Insurance Policy.
CONSEQUENCE: In some settlements, the higher income earner buys life insurance with the other spouse as the beneficiary. Obviously, this insures that if something were to happen to the alimony/child support, the family income would continue. However, because the paying spouse is the owner of the policy, they can change beneficiaries at any time after the divorce. Even worse, they can decide to stop payment and cash out the policy!
We can help you check that settlement choices are informed and fair, and demonstrate how the choice can make a difference for you.
DIVORCE FINANCIAL MISTAKE 6: Taking the market value of the house as an even settlement.
CONSEQUENCE: John and Jane have a combined net worth of $1 million dollars, which includes a home that has a market value of $500,000. Just because you take the house, does not mean you are getting a 50/50 settlement. Many financial issues must be uncovered. What was the cost basis of the home? This will affect your taxable gains. When it comes time to sell the home years after the divorce, you alone could be responsible for all the taxable gains.
If you will be refinancing the house, be sure to triple check the numbers. This is important if you are required to submit multiple loan applications. Loan officers forget a lot of your key details. Make a list of your deal numbers.
DIVORCE FINANCIAL MISTAKE 7: Paying the wrong amount of alimony.
CONSEQUENCE: Unfortunately, you may need to pay alimony to your spouse. It’s a good thing that alimony may be tax-deductible to the payer. However, if improperly planned, if too much is paid within too short of a time, the IRS may come after you for recapture of all the alimony you deducted! A divorce financial analyst will show you how you can structure your alimony payments to prevent tax-recapture, and how it can benefit both you and your ex-spouse. Yes, paying alimony may even work in your favor! To see how, review the Expert Valuation, How We Help Clients section on this website.
DIVORCE FINANCIAL MISTAKE 8: Not having your business professionally appraised.
CONSEQUENCE 1: Now more than ever, more families are becoming business owners. It could be an established company with employees, or a small shop across town, or even just a startup business in your basement office. When it comes to divorce, everything needs to be assigned a value. How do you value that business? Your spouse may tell you that the basement startup business is not worth a dime, since it hasn’t even produced significant cash flow. However, until it is professionally appraised, you cannot be sure of the fair value. There are certified business appraisers that will consider all variables to give you an accurate present value. Business valuations look at the value today, which includes a view of the established future.
Click to see the Starting the Divorce Valuation Process, 10 Initial Data and Document Requests
DIVORCE FINANCIAL MISTAKE 9: Not taking into consideration the value of intangible assets.
Divorce Business Valuations For Litigation May Require Formal Certification.
CONSEQUENCE 1: When we think of assets, we automatically think of the house, cars, savings, investments, etc. We first think of the tangible assets. One of the biggest mistakes made by a divorcing spouse is not to consider the value of intangible assets, such as career and business assets. These are the assets tied to you and your spouse’s career and business.
Career Examples: Insurance, stock options, vacation pay, sick pay, pension plan, social security, professional contacts, job experience! It goes on and on the more, you think about it. Depending on the situation and the company, you may have a right to the benefits of some career assets. This is valuable for the spouse that neglected their career for the health of the marriage.
When a business is an asset, the intangible assets are very important. Today, as much as 70-80% of a company’s value can come from intangible assets. Valuable assets that are easily overlooked and hidden.
DIVORCE FINANCIAL MISTAKE 10: Not understanding how marital debt can hurt you.
CONSEQUENCE: Just because your spouse agreed to pay off your joint credit cards, does not mean that you are in the clear! Keep in mind that debt was under your name as well. Your spouse can choose to default on the payments, and not only will it reflect on your credit, but creditors can come after you for the remainder of the payments! A smart option is to clear the marital debt before the divorce, regardless of who put those charges on the credit cards.
Call 513-266-3226 or e-mail valuation@CertifiedBusinessAppraisal.com we will help you with your Best Next-StepSM for free.
Attorneys and Other Advisers Make Mistakes
“Attorneys often tend to feel they have the knowledge and experience to take care of many complex financial matters on their own, even though most do not hold any sort of business degree. This can create costly mistakes for their clients, if they do not fully understand the complicated financial concerns at hand.”
– Joseph E. Cordell, Partner at Cordell & Cordell (the largest family law firm in the United States)
You must keep notes on everything. Consider a digital recorder and voice-to-text. Smart Phones have an app. Index (specific comments) and catalog the recordings with a summary (Table of Contents in MS Word or other word processor). The recordings of yourself or another can support your recollection of the events. This is particularly helpful when another party is behaving badly. Check with your attorney for proper procedures on recording. I know this seems like a lot of work. It will make finding information easier later.
Your lawyer is your advocate, and must act like it. Believe and back you up, and not believe opposing counsel or your spouse without facts and your input. Tell you when it is a bad deal. Will you get an itemized bill at the end of each week to prevent surprises? If your attorney does not have a plan, they cannot be your advocate.
Your attorney should warn you not to play hide and seek with your income and assets. You should talk about opening a new separate (non-marital) bank account for post separation earnings. In addition, go over with the attorney how to legally and physically separate non-marital assets from marital assets.
What is the attorney’s plan to stop your spouse from sticking you with bills? Such as changing who is responsible for or controls utility, phone, checking and savings account, and other joint accounts. What needs to happen before filing to be prepared?
Make sure that you have all of your and your spouse's documentation before you even entertain any settlement offers. And, if there is anything in the settlement offer you do not like or cannot live with, do not agree to it. Negotiate a better deal on that section only.
Your attorney should be clear on how they will help you to protect yourself financially and physically, and negotiate specific points. My personal experience suggests that any settlement offer that combines finances with other negotiation points or areas is not appropriate. For example, child time used to leverage for money. Negotiate and settle one then the other.
Only give up something for something that you want more. Be your own advocate with the lawyer and others. If you have any questions about anything or feelings about the lawyer's actions, ask more questions.
Interviewing at least three divorce attorneys is important. I suggest interviewing an attorney out of your area to get experience with the process. We are living in an age when you need specialists. Selecting a divorce attorney is financially and emotionally critical.
You should have a good idea of the attorney’s
- process plan specifically outlined
- data and document gathering needs with a checklist
- how long things will take (track how accurately they estimate, time can slip away with a lot of your money)
Once you have provided documents to your attorney, you want a complete, equal and fair exchange. However, withholding is not proper by their rules, but I have found some attorneys do not always follow the rules. Confirm your attorney has received the documents and transmitted copies to your spouse’s attorney. Every time.
Sometimes being in the right court for the ‘best judge’ for your case is important.
For example, if an “order to compel” is issued to obtain documents, will the judge follow through on “contempt of court” to force providing the documents? In addition, if documents are not provided will your attorney subpoena them without waiting for weeks?
Money Mistake Detective
You have a valuation number. You think it's ok. But you're not sure. You have a lot on money riding on the situation. So, you want a second opinion.
We find valuation mistakes that others completely miss.
This is made possible by
- over 25 years of litigation tried by fire experience, (everything, and I mean everything, done for litigation is challenged and by expert attorneys who know how)
- professional quality evaluation controls and reporting standards,
- 200 plus pages of detailed protocols and application checklists, and an extensive digital and physical library
- a deep understanding of the valuation calculation process
- and required professional standards
Your fee is 20% of your valuation's total cost with a $500 minimum. Cheap risk insurance.
See - Expert Valuation, How We Help Clients Examples
Please send OCR Scanned or Original Searchable PDF file with your check made out to David A Dinsmore.
Would it help to have a neutral expert give you a second opinion on your report?
- You received your valuation report, and the goodwill number or something just does not feel right. You discussed the numbers with the author and you were still uncomfortable. You know you are uneasy, but cannot put your finger on why. And, you surely do not want to take the time and expense to do it over from scratch.
- When that's your case, it's time for a second opinion. Sometimes everyone just needs a second opinion. You just want to know the reason why something is off.
- Medical practices and groups, golf courses, golf clubs, restaurants, construction, and others in volatile industries make second opinions a popular and smart safeguard.
- A divorce or dispute value, a purchase, or goodwill's sale price drives some of the largest financial decisions in your life.
- The review of another's valuation report can show the weaknesses and flaws, things that can cost you money, time, and embarrassment.
- A professional review can point you in the right direction. The critique highlights violations of valuation standards, accepted valuation principle's application, and uses over 25 years of experience to show you problem areas. Your report will show you clear reasons why to accept or reject a value conclusion.
- Good case, the value shows a reasonable conclusion. Best case, discovering a goodwill number way off the mark safeguards you from a bad decision, and often is a cheap form of insurance.
See Expert Work: How you get help.” Some are examples of second opinions.
P.S. Yes, I use the same meticulous and exacting templated procedures on my own reports.
You are welcome to ask anything. Here are some topics and articles:
Request Examples: Your Business Mistakes Selling