10 tips for surviving a divorce in a downturn
As the New Year approaches, many couples will make resolutions for 2010. For some that will include a decision to separate and seek a divorce. Navigating a separation during the current economic challenges can be extremely difficult.
Here is a survival package.
1. Be realistic. Realize that in a divorce there are no winners. It’s a question of “degrees of losing.” Be realistic about what you can expect. If you are deeply in debt a divorce will not improve that situation. Remember that you cannot bankrupt out of most divorce related obligations, especially family support. Two households are more expensive than one, so accept that your lifestyle may be reduced after you separate.
2. Real estate: Houses are taking longer to sell at this time. Understand that you may need to find a way to cohabit in one home for an extended time unless you can afford to maintain two homes pending the sale of your family residence. Options are to set up separate bedrooms in the house or a nesting arrangement where the children remain in the house and the parents move in and out.
If there is domestic violence you may have to split up sooner than later. Think about creative solutions where one party keeps the house and the other receives payment for their share over a period of time rather than selling the home in a bad market.
3. Refinancing loans; it may be impossible for one spouse to refinance the mortgage. In that case you may need to give the other spouse time to refinance rather than selling the home. Mortgage companies are getting tougher and tougher, so be flexible.
4. Mediation and Collaborative Law: Consider mediating your divorce or participate in a Collaborative Law process. If you can save on attorney fees and conduct your divorce in an amicable manner it will be easier and less adversarial. However, do not take short cuts in getting full information and disclosures. Those who divorce in haste can sometimes “repent at leisure.” Not all cases are suited to a cooperative process, but you should aim to make your divorce as amicable as you can.
5. Get tax advice. If you choose a well-known divorce attorney, they will likely be knowledgeable in tax issues which could make a significant difference to your divorce settlement. Otherwise get advice from a tax expert because tax implications can really impact the bottom line in your case.
6. Reduce the anger and feelings of revenge. Using the divorce process to vent your anger because your spouse has cheated on you or treated you unfairly is not helpful. It won’t change the hurt feelings and there are better and cheaper options for venting. Do not spend your children’s college funds just to get mad and try to get even. Be civil to your spouse where possible.
7. Keep your Job. With jobs scarce and the specter of lost employment hanging over even top workers, do not lose focus on your job responsibilities. You will need your income more than ever in these tough times.
8. Retirement Assets: What many couples do not realize at the time of their divorce is that retirement assets can take three to six months to divide. If one party or the other is planning to cash out a retirement account to fund debt or living expenses in the short term (perhaps until the house sells), think again. That money may not be immediately available. 401(k) plans can be cashed out in a divorce without the recipient paying the 10 percent penalty (but still paying ordinary income taxes), but IRAs and pensions do not allow this same benefit, so if one spouse needs cash from a retirement asset, it’s important to consider which retirement asset is divided so as to avoid that penalty.
Allocate gains and losses on retirement assets divided-It is advisable to indicate that the spouses are to share the gains and losses in the time between the divorce and actual retirement account division, as the value of the account may change dramatically during that time.
9. Debt division: Payment and allocation of debt may be one of the biggest issues facing divorcing couples right now. Gone are the days of easy credit. Credit card limits are being slashed, not increased, and it is nearly impossible to remove one spouse’s name from a joint card without high income and perfect credit. At the same time, many couples have funded periods of unemployment, balloon mortgage payments or attorney fees on joint credit cards.
Unfortunately, many divorcing couples are bankrupt. If possible, each spouse should take the debt in his or her own name, and joint debt should be paid off from assets off the top. Remember that if a debt is allocated to your spouse the creditor can still look to you for payment if your spouse defaults.
10. Spousal maintenance: Try to keep some cash in reserve for a rainy day. Gone are the days when a couple can assume that the high-earning spouse will keep his or her job, or find another, better job. If a job is lost, months might pass before a replacement is found. Payors need to beware of contractual non-modifiable maintenance in the current economy. If the Court retains jurisdiction to modify maintenance, then changed circumstances can be addressed where necessary. There is no easy solution to this problem for divorcing couples, except that both should be prepared to be realistic, do their best to be self-supporting, and be flexible with each other when possible.
Finally, try to keep calm and rational when all those around you are becoming upset, angry and irrational. You will get through the process and if you can remain reasonable and flexible, you will survive and your children will thank you for that.