Divorce Planning for The Primary Bread Winner
Divorce is often portrayed as a spur-of-the-moment decision, in which people in a marriage decide they can't take it anymore and rush to the courthouse to file. If you are contemplating divorce, you have likely thought about it for a few years since the breakdown of a marriage is a slow process. Similarly, allow yourself some time to plan your exit so that you are not financially and emotionally devastated.
Divorce wreaks havoc on everyone in the family. The primary breadwinner can lose a significant share of their estate, lose contact with their children and be required to pay their ex-spouse maintenance (formerly called “alimony”) for several years after they divorce.
If you are thinking about divorcing your spouse, in order to maximize your options and minimize your risk, you need to consider several issues and plan accordingly before heading to the court house.
Leaving a marriage is not an easy process emotionally or financially, even if you are the one who ends the marriage. No matter how you look at it, it is still a loss. It is the loss of a dream, a life style, social status, and family unit. It is always a financial set back. How much you lose, and how fast you recover in part, is related to how you leave.
A little of bit of planning can save you thousands of dollars, secure your role with your children, and make the transition out of your marriage less traumatizing.
The following information should be used as a guideline, it is not all encompassing. Every situation is unique, and has its own twists and turns, which should be discussed with your attorney.
- While you are divorcing your spouse, you are not divorcing your children. Protect yourself from claims by your ex-wife that you are minimally involved, and therefore, should be relegated to a weekend Dad or to the status of baby sitter. Get involved with your children's day to day routines. Take them to their doctor appointments, attend school functions, and help them with homework. Make dinner, play with them, go to their sporting events, and become as equally involved as your wife.
- In order to maximize your parenting time with your children after you separate or divorce, you need to maximize your time with your children BEFORE you separate or divorce.
- If at all possible, stay in the home. Get your spouse to move out. If you can’t stay in the home, do NOT leave until you have a mutually agreeable parenting time arrangement with your wife. Once a divorce is filed, it could still be a few months before you see a judge or have a hearing regarding temporary parenting time.
- Do NOT accept or agree to a minimal arrangement regarding your children, as that could become the “status quo” for court purposes.
2. MAINTENANCE (FORMERLY ALIMONY)
- Get your spouse back to work. If you historically have supported your spouse and she hasn’t worked in several years or has no education, you will most likely be required to continue to support your spouse for a period of time UNLESS she starts to become self-supporting.
- If your spouse lacks an education or job skills, encourage her to go back to school to obtain a degree or acquire vocational skills. If she works part-time, encourage her to obtain full time employment.
- Don’t fool yourself into thinking that just because your wife made a good salary 15 years ago, she should be able to resume making the same salary although she’s been out of the job market for a decade and a half.
- The job market is competitive. Skill sets change. A highly educated person may still need to go back to school and obtain an advanced degree to successfully compete in today’s economy.
- Once you physically separate, don’t give your spouse carte blanche access to the joint bank account or joint credit cards. Don’t cut her off either. She needs to survive. However, be mindful of the amount she has to spend as lavish or excessive spending habits can easily set a precedent for the amount of money that she will ask for, and the amount she could receive.
- If you have a child under 30 months, and your spouse stays at home, your spouse will NOT be expected to return to work, nor will she be imputed any income. You will find yourself in the position of having to pay maintenance and child support. Once the youngest child attains the age of 30 months, the stay at home spouse is generally expected to return to work.
- Effective January 1, 2014, Colorado revised the maintenance statute, and created “guidelines” as to amount and duration of maintenance, once parties have been married for 3 years. Although judges are not required to follow the statute, many do.
3. JOINT ACCOUNTS
- Close all joint bank accounts if you are concerned that your spouse will use or abuse them.
- Open a separate bank account. You can write a check to your spouse for maintenance or support.
- Close all joint credit card accounts. If your spouse runs up enormous credit card debt on a joint account, you will still be legally responsible to the creditor upon default even if the court orders your spouse to pay.
4. MARITAL PROPERTY
- If you owned property prior to getting married, do not put your spouse’s name on the title. You can protect your pre-marital interest ONLY if you do not convey title and gift it to the marital estate.
- Any property acquired after you got married is considered joint property regardless of how titled. If you are considering buying a significant asset, i.e. vacation home, car etc. WAIT until AFTER you are legally separated or divorced. Physically separating does not protect your assets.
5. TAX LIABILITY
- If you and your spouse are going to owe income taxes as a result of your spouse’s under withholding or failing to make estimated tax payments, do NOT file a joint return. Otherwise, the IRS can come after you regardless of the fact that it is your spouse who actually owes the tax.
- Consider the tax consequences before filing jointly, head of household, or married filing separately. Even if you are physically separated, until the divorce decree is final, you still maintain the tax status of a married person. Consultation with a tax professional is highly recommended.
- You will need to consider several issues such as whether or not the amount of money you give your spouse to live on will be tax deductible to you; whether or not you get to take the mortgage interest deduction; or how many dependents you are entitled to claim.
- Once you file for divorce, you CANNOT remove your spouse from any insurance coverage, nor can you remove his/her name as the beneficiary of any insurance policy, retirement plan, etc. Depending on the timing, you MAY be able to remove his/her name BEFORE filing.
7. CHILD SUPPORT
- Child support is primarily based on the joint incomes of the parties, extraordinary expenses, health insurance costs and number of overnights.
- If you have a child under 30 months, and your spouse stays at home, your spouse will NOT be imputed any income no matter what she is capable of earning. Thus, you will be solely responsible for child support. If possible, wait until your youngest child is at least 30 months old before you file.
- One you physically separate, make sure that you maximize the number of overnights that you have with your children. Less than 93 overnights per year, results in a higher child support award.
8. LIQUID ASSETS
- If you are concerned about having access to funds, or are concerned that your spouse will deplete the joint accounts, take ½ of the liquid assets BEFORE you file. Put them in a separate bank account, and make sure you can account for the proceeds. You must maintain complete transparency and be able to account for the funds if you spend them. Once you file, an automatic injunction goes into effect restraining you from accessing significant amounts of cash absent a court order or consent from your spouse.
9. MAXIMIZE YOUR DEBT
- Good divorce planning is the antithesis of good financial planning. In other words, good divorce planning equals bad financial planning. If you have a long term marriage (over 10 years), the court is likely to split your assets 50/50, but divide the debt in proportion to income.
- If you are planning on separating or filing for divorce, now is NOT the time to pay off your credit cards and other debts. The more disposable income that you have available, the more your spouse can get if she is seeking maintenance.
- This is the time to use your credit cards. Don’t pay for everything in cash. The more debt that you have at the time that a decree of dissolution is entered, and the worse your financial picture looks, the better it will be for you as the court must consider your debt load before awarding maintenance.
10. RETIREMENT ACCOUNTS
- Stop contributing to your retirement accounts. If you are planning on separating or filing for divorce, now is not the time to increase or even maintain your contributions to your retirement accounts. The value of your retirement accounts up to the time that a decree of divorce or legal separation is issued, is considered marital property and will be divided with your spouse.
11. DO’S AND DON’TS
Remember the person you are divorcing is NOT the person you married. PROTECT YOURSELF!
- “Don’t leave home without it.” If you move out, take everything and anything of value. You need to consider that if you don’t take it, you may never see it again. This includes important papers, copies of tax returns, birth certificate, passport, military discharge papers, employment agreements, retirement documents, car titles, and bank information.
- Take your personal belongings, clothes, heir looms, gifts, momentos and copies of family pictures. You may never get back into the house, or your personal and important items might “get lost” or “go missing.”
- Change your passwords including to your Email, computer, online bank accounts, credit cards, employment portals, mortgages, car payments, student loans, and cell phone records.
- Fill out a change of address card with the U.S. Post Office and CALL or physically change your mailing address online for bills, account statements, utilities, insurance, mortgage company, car payments, medical providers and all other entities or people from whom you regularly receive mail.
- Before closing or changing bank accounts, make sure that any automatic payments or debits have been securely attached to your new account, or request paper statements.
- Before closing or changing bank accounts, make sure automatic payroll, retirement, or Social Security deposits are routed to your new account.
- Make sure that the children’s schools, coaches, teachers, sports teams, extracurricular activities have your name and current contact details.
- Do get counseling for yourself and your kids. No one escapes unharmed. Everyone is affected to some degree.
- Do not ask or allow your friends to give you legal advice. Like finger prints, every case is unique.
- Don’t think you are saving money by not consulting with an attorney. The law is complicated. If you enter into a bad agreement, you may not be able to get out.