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Please contact my office to setup a free phone consultation at your convenience.
4807 Gaston Ave.
DALLAS, TX 75246
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Phone: 214-528-4191
Office Hours:
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| Financial Issues |
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Not all Assets are Equal
 When you are deciding on what assets you and your spouse will take, you should be aware that not all assets are equal. One of you may end up with a huge tax bill when you access the assets: for instance, you could end up paying capital-gain taxes upon the sale of your home or your investment assets. In addition, if you dip into your retirement assets, you may end up paying income tax and a penalty. In the example above, Lisa paid taxes and a 10% penalty in the U.S. every year that she dipped into the retirement account.
Other assets may end up being a money pit. Your primary residence, vacation home, or rental properties could cost you a significant amount of money to maintain. Frequently, the primary benefit of a rental property is not necessarily cash flow, but the tax losses that are generated. If you are in a low tax bracket, then these losses may not benefit you to the extent that another investment would. Your expenses may actually increase. For example, if your spouse used to make all repairs, mow the lawn, etc., but now you have to hire someone to do those things, then your expenses will increase.
Would you be better off liquidating these properties and investing the proceeds in something that would increase your cash flow instead of creating a financial drain?
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The Family Home
Reducing expenses may mean selling the family home and downsizing to a smaller home. In the example above, did Lisa really need the million-dollar family home? In this case, "keeping up appearances" cost her a comfortable future. If she had sold the house at the time of her divorce, she could have increased her cash flow in two ways: decreased costs, and additional funds to invest. The costs to maintain her home -- such as property taxes, utilities, maintenance, and repairs -- would have decreased in a well-maintained but more modest property. In addition, since there was no mortgage on her home, she would have been able to buy a smaller home free and clear and still have funds left over to invest and increase her cash flow.
Her choice to keep the house also meant that she was hit with all the capital-gains tax from the time she and her ex-husband bought the house in 1975 to the time she was forced to sell it. The house had appreciated significantly in value over the years, so after paying her tax bill, she was left with a much smaller nest egg than she had expected to help her start over.
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Choose Your Battles
 You can go broke during property division if you insist on fighting over every last item. During her marriage, Mary purchased a leather
desk-accessories set that included a matching leather wastepaper basket. Her husband Larry wanted the wastepaper basket, but she insisted that the set would be incomplete without it, so they ended up fighting over it. After spending in excess of $5,000 in attorney's fees, Mary ended up with the wastepaper basket. Does this sound too ridiculous to be true? Be warned: this kind of thing happens every day in divorce court. Emotions are running high, and some people will fight "to the death" over truly trivial items.
Sometimes, they're more concerned with making sure their ex-spouse doesn't get something than with actually getting it themselves.
You have to look at the big picture. Is this item really worth fighting
over? Can you purchase a new one for significantly less than you will spend in attorney's fees? Not only are you wasting money, but you are also increasing the ill-will between you and your soon-to-be ex. If you have children, this can take an emotional toll on them.
Here's a hard truth for you: no one gets everything they want in a divorce settlement. You will have to give up some possessions you really like -- maybe even some heirlooms -- so prepare for this by creating a short list of "Must-Haves," a longer list of "Would-Like-to-Haves," and a third list of "Don't-Wants." Don't tell your ex you don't want the items on this third list; instead, "gracefully" offer to trade them for the items you really want. Be prepared to give up some of your "Would-Like-to-Haves" in exchange
for more of your "Must-Haves."
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Forgettable assets
Some assets are easy to forget, such as pensions, stock options from an employer, accrued sick and vacation pay, the cash value of insurance policies, frequent-flyer miles, prepaid dues (such as annual country-club dues and season's tickets or passes), and timeshare properties and vacation clubs. These should be addressed as part of the property settlement. In many cases, pensions can be worth more than houses, so make sure you have a qualified financial professional value these and other assets before you sign away your rights to them.
Credit Rating and Debt
It is imperative to protect your credit rating. Here are some tips:
- Get a copy of your credit report
- Close all accounts that you do not use
- If you don't already have one, apply for a credit card in your name only close all joint accounts and credit cards.
- A vindictive or spendthrift ex-spouse can incur debt on your joint accounts and destroy your credit rating during the divorce process.
- If you're not able to pay off a joint account in full, ask if you can maintain a balance on it after it's been closed.
Your credit report will help you discover any outstanding debts that need to be addressed as part of the divorce process. It may be best to pay off joint debts with marital assets, and then each spouse can move forward with a clean slate.
Once your divorce is final, you should use your credit cards sparingly. If you need to establish a credit rating, make sure to pay off all balances on time every month.
If you need to use credit for short-term liquidity, then you may be better off refinancing your home and avoiding maintaining a balance on your credit cards. The benefits of refinancing your home include deductibility of interest and a lower interest rate. You will need to qualify for the mortgage, but spousal and child support are generally included as sources of income to permit a non-working spouse to qualify for a mortgage.
Back to Work or School?
 You may have to go back to work to supplement your support payments. If you don't go back to work now, do you want to wear a fast-food restaurant uniform when you're in your 60s or 70s? Your property settlement assets should be kept for your retirement -- remember Lisa's example (above) when you're tempted to dip into your retirement account.
You have to be realistic about any career changes you make. What are your prospects at your current job? If you go back to school, what can you realistically expect to earn? Will your degree improve your earning capacity? Are you taking courses that will help you secure a position in a growth industry that needs qualified workers, or are you just taking a course because it interests you? Does your chosen career or course of study take advantage of your natural strengths, abilities, and interests? Taking courses you hate to secure a job you'll hate is not a wise use of time or money. Work with a career counselor or personal coach to figure out the pros and cons of staying put or changing direction.
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The Bottom Line
Your lifestyle will change after your divorce. You will have to make some sacrifices. However, if you plan ahead, these sacrifices will pale beside how bright and prosperous your future will be.
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