Part 1 – BEFORE:
The ideal time to begin working on the financial issues related to your divorce is before the formal process begins. Deciding not to do anything or acting impulsively without knowing the potential long-term financial and tax consequences can be disastrous for your financial future.
Here are common financial mistakes to avoid even before the divorce process begins:
– Breach of fiduciary duty between husband and wife: The California Family Law code states that a husband and wife are subject to the general rules that govern fiduciary confidential relationships. “The relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take unfair advantage of the other.” This duty requires that each of you provide access, at all times, to all records kept. Both of you are also expected to provide each other with an accounting, and hold as trustee, any benefit or profit derived from any transaction which concerns the community property. The “penalty” for breaching this duty can be severe, including loss of your entire share of your community property interest.
– Not identifying your goals, objectives and needs at the beginning of the process: Knowing what you want to achieve will help you to stay focused on what is important to you, and will keep you from being distracted by the emotional challenges inherent in the divorce process. Having a written plan can also help your attorney and other advisors understand how they can best meet your needs.
– Not considering all of the divorce process options available to you: Going through a divorce can often feel like you’ve lost control, especially when you are relying on a third party, such as a judge, to make a decision. Consider an alternative process such as Mediation of Collaborative Divorce.
– Not identifying the source of funds to pay for divorce professional fees: The amount of professional fees you can anticipate having to incur are directly related to the process you select. Typically, you can anticipate that going to court will cost more than working within a mediation or collaborative process. Regardless of the process you select, you can anticipate incurring substantially higher professional fees when one or both of you withhold information or records that are required to be disclosed, and you do not actively participate in the process and/or behave in an honorable manner.
– Not considering your needs for any career training, education and/or credentials: As you move beyond divorce, and look towards the future, it is in both of your best interests to be financially self-sufficient. Identifying needs and costs for any career training and/or education at the very beginning of the divorce process provides an opportunity to structure the settlement to include these needs. Addressing this at the outset and allocating funds to cover the cost can result in both of you having more funds in the future.
– Seeking financial and tax advice from friends and family: Having supportive family and friends to turn to for advice during your divorce can be of great benefit to help you get through a difficult time; unless they are financial experts, however, don’t rely on their financial advice.
Have you made one of these mistakes? Or are you about to? If you are in the process of going through your divorce, I highly recommend that you consult with a divorce financial planner who can help you avoid these mistakes.