Saturday, May 22, 2010

The Financial Ramifications of Divorce

Two of my good friends are getting divorced. One just finished the process, however the financial disaster that was her marriage is now following her into her newly divorced life, and another just began the process--her husband filed for divorce nearly out of the blue (he gave her a couple weeks notice that he had found a new girlfriend) and now she is in panic mode because for the entirety of her 20+ year marriage she has not had to work. Here's some things I have learned about divorce by following along with my friends as they have gone through this gut-wrenching process:
  • During your divorce, the judge can award the debts to your spouse but that is no guarantee that your ex will pay the debts, and, since your name was probably on the debts as well, the debt collectors can come after YOU to collect. From what I understand, if this should happen you can take the ex back to court because they are in contempt of the judge's order but that will take (a lot) of time AND your credit will already be ruined due to late payments/no payments of the debts. My friend can't even qualify for a store credit card with a $100 limit because her ex decided to stop paying the debts and has told her he has no intention of paying them even if it is killing both of their credit scores. What we can learn from this: ALWAYS be debt free in your marriage, this way there will be no debts to argue over in the divorce.
  • If one spouse is awarded the house in the divorce, do not quit claim the house over to the ex until they refinance it. There are have been quite a few instances where one spouse agrees that the other can have the house in the divorce so they just sign a quit claim deed and think they are done with the house. Not true. As long as both names are on the mortgage, both people will be responsible for the loan no matter who officially owns the house. What we can learn from this: there are two ways to handle the house in a divorce, sell it and split the profit or have one person refinance the loan into their name.
  • My friend has never had to work. Her husband always had a very high paying job and they both agreed that she would stay home with the kids. While she has done amazing things as a volunteer with community organizations, she has never earned money herself. While she has always had a wallet full of credit cards at her disposal, she has never had to pay any bills as her husband always handled this. Hopefully she will get a reasonable financial settlement (no guarantee of this in our state), but she is literally starting from square one when it comes to her financial life. What we can learn from this: money is everyone's business in a marriage, the earning of it, the budgeting of it, and the spending of it.
  • I can think of few things more terrifying then getting a sudden, "I'm out of here" from the spouse. Obviously there is the emotional trauma from the sudden screeching halt to your marriage, but the other part of the equation, as happened to one of the friends I mentioned above, is that the husband walked out and she didn't even have enough money in her bank account to buy diapers for her baby. What we can learn from this: EVERYONE needs their own emergency fund. It is a simple process to open a bank account in your own name, put money into it little by little, and eventually build up a substantial amount of savings that would come in mighty handy in an emergency like a spouse leaving (or a killer vacation to celebrate your 50th wedding anniversary!).
  • There are a whole bunch of details that need to be dealt with when a marriage ends, some of which can have drastic consequences on one or both parties. Both friends lost their health insurance because their husband's policies provided their coverage. One friend had to move to a tiny apartment because that is all she could afford, another divorced friend not mentioned above is struggling with paying for her kids soccer/braces/prom dresses/etc because her ex sends exactly the court ordered amount of child support and no more, and yet another friend divorced less than six months got involved with a new guy who basically took her for thousands of dollars (he was handsome, charming, manipulative, and chronically broke). What we can learn from this: your lifestyle may take a nosedive so be prepared for that, take advantage of any community/social service that you qualify for based on your new financial status, plan ahead for future costs such as your kids braces and get this in the divorce agreement, and stay away from anyone who wants to part you from your money, you need it more than they do!
  • Get everything in writing. Both friends were promised many things from their (lying, cheating, guilt-ridden-at-the-time) husbands. Unfortunately, as soon as they left and got with other women, both were suddenly overcome with amnesia to the point where neither remembered the promises they had made. What we can learn from this: if there are agreements made verbally, they need to be written down and included in the divorce agreement. Spoken agreements are basically worthless and a guilty person may promise a whole lot of things that they won't follow through with.

It is often said that divorce turns a romantic relationship into a business proposition; a business proposition between two adversaries no less. Everyone, no matter how loving and stable their relationship is, should take steps now to protect themselves financially in the event of divorce.

1 comment:

  1. sad. I have never been married, and although I want to be one day, it is not something I NEED to be whole. I've always felt it is better to get married older rather than younger for a variety of reasons.

    This is VERY good advice that everyone, married or unmarried NEEDS to hear. This is another reason why I plan to be debt free during marriage and to marry someone who shares the same financial mindset.

    This is also the reason why I would never be a stay-at-home mom long term. It is beneficial to the child, but what about the mother? Nothing, but nothing in life is guaranteed and I would never leave my livelihood in the hands of someone else. Dr. Phil always says, the person you marry and the person you divorce are two DIFFERENT people.

    I hope your friends recover from these unfortunate situations.