Posted by Ramos Law Group, PLLC | Divorce, High Net Worth
Maintaining Your Standard of Living After Divorce
Divorce is a financial strain on even the most budget-minded person. Typically, a divorce results in a two-income household becoming a one-household. Even more jarring, sometimes a household that relied on one breadwinner becomes two households on one income. Financial woes or stress are to be expected when going through a divorce, but how can a person really prepare for a divorce financially and maintain their current standard of living? The Ramos Law Group has a few tips for you if you are contemplating going through a divorce.
1. Review Your Existing Financial Needs
Under the Texas Family Code, the family law court system takes a critical view of financial needs. The Court considers costs in the mindset of “are they reasonable and necessary expenses?” Rent, legal fees, business operating costs, utilities, food, clothing, vehicle expenses and even items like tithing and entertainment expenses are all under the umbrella of “reasonable and necessary.”
Should you have a hearing or trial on the issue of temporary support or post-divorce maintenance, the Court is going to want to see a Financial Information Statement that lays out exactly what each party’s monthly expenses are, or as close to possible for each month as things fluctuate.
It is important to have this information at the outset of your case as it will help guide your legal team through the litigation process in terms of goals for support or a final property division. It is helpful to have documentation (bills, credit card receipts, tuition documents) to evidence the needed expenses.
2. Cut Extra Costs
Divorce takes an emotional toll on all involved and it can be difficult for parties to cut items they are accustomed to; it can feel like additional punishment. But a monthly tanning membership or big game hunting trips do not fall under the umbrella of “reasonable and necessary expenses.” If your income allows for it then by all means go ahead, but if parties are litigating over support in Court it can be almost guaranteed the Court is not going to consider those types of expenses as reasonable and order another party to foot the bill. It makes the pill a bit easier to swallow the review the previous six months to a year of expenses and flag expenses that just aren’t all that necessary in the grand scheme of things before the divorce process even gets started.
3. Plan for the Future
Many parties going through a divorce are desperate to cut the cord and just want out. They are not thinking about the long-term implications of the divorce settlement. But it’s important to do so as what you agree to in a divorce settlement today can hurt you when you file taxes next year. Be mindful of the tax implications of any retirement fund transfers. It’s always better to roll any 401k money you receive from a spouse into an IRA or other fund than take the cash option as there are tax consequences. But some parties need the cash option for a down payment on a home. Talk to your legal team and a financial planner to really think about the long-term results from any divorce settlement. It may feel like you won the lottery with a cash out option on your ex-spouse’s retirement fund but it is going to hurt the next time you file taxes.
It’s common for a person going through a divorce to want to jump into the next chapter of their life – new house, new car, new job – but sometimes it is better to let things settle before trying to start a brand-new life. It can be beneficial to see how you function within the structure of a one-income household with a new budget before jumping in to any new financial obligations.
4. Accept That Certain Things Will Change
Divorce is going to have an undeniable impact on the majority of parties’ standard of living. The Courts do their best to try to mitigate this and make a just and right division of community property, but there is almost always still a void or some sort of effect. It can be helpful to remember these changes may be painful but just a small stepping stone to the next chapter. Things like operating within a restructured budget take an adjustment period.
5. Be Responsible
Divorce can be difficult for even high-worth individuals. For those on the lower end of the income scale, it can be devastating. Accruing some debt during the divorce process is normal and expected. If there are any other avenues, avoid incurring high credit card fees during the divorce process. The Courts typically award debt to the party whose name the debt was incurred in so any credit card debt is likely going with you in the divorce. For certain things like car repairs or attorney fees it can be a necessary evil, but review your budget or try to cut expenses rather than incur frivolous debt.
The same goes for cashing out any small retirement accounts, stocks, bonds, etc. You may feel like you absolutely need the cash (and you might, so this is fact specific) but make sure you are thinking about the tax implications as well.
Each case is different and no couple has the exact same income and expenses. If you are going through a divorce or believe a divorce is on the horizon, gather your financial documents and consult with a licensed Texas divorce attorney like the Ramos Law Group. We can help review your expenses, review your property portfolio and strategize a plan to get you out of your marriage and onto the next chapter of your life with as minimal upset as possible.