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Financial Considerations When Preparing for a Divorce

It is a good idea to start preparing for a divorce before any paperwork is filed with the courts. The information we cover below is useful if you think divorce is on the table. You can never be too ready.

Much of what this entails involves getting organized with your budgeting, knowing your spending and income, and getting handle on accounts and debts.

It might not be easy to work with your spouse at this time, but cooperation goes a long way in keeping down the cost of a divorce.

Should You "Put Money Away" Before a Divorce?

It is not unusual for at least one person to sense that a divorce is eminent, and given the costs associated with separating, he or she might feel compelled to set aside money for rising expenses.

Socking away money in front of a separation is sensible, although not necessarily advantageous for one side or the other, when considering the division of marital property.

Under California law, the courts consider the date of separation when addressing how community property is to be divided.  This is covered in Family Code 70, which states:

(a) Date of separation "means the date that a complete and final break in the marital relationship has occurred, as evidenced by both of the following:

(1) The spouse has expressed to the other spouse his or her intent to end the marriage.

(2) The conduct of the spouse is consistent with his or her intent to end the marriage.

(b) In determining the date of separation, the court shall take into consideration all relevant evidence.

(c) It is the intent of the Legislature in enacting this section to abrogate the decisions in In re Marriage of Davis (2015) 61 Cal.4th 846 and In re Marriage of Norviel (2002) 102 Cal.App.4th 1152."

What Constitutes Date of Separation?

Separating couples can agree on a date of separation. If they do not, the court must make a finding.

A clear communication of intent to separate is the standard that the courts look toward. That can be a letter, a text, an e-mail.   If you exchange volatile texts with your spouse—where you’re breaking up one day and reconciling the next—that can be troublesome for establishing a clear intent to separate.

Advice that we often provide to clients is this: if you’ve decided to separate, put it in writing. Follow that up with a demonstrative action of separation, such as:

  • Moving out of the family residence
  • Separating joint bank accounts
  • Moving into a new room
  • Start equally splitting bills expenses
  • Dividing assets by agreement

Separating Joint Bank Accounts Ahead of Filing for Divorce

Certain rules called ATROs (automatic temporary restraining orders) go into effect once divorce has been filed. ATROs affect what you legally can and cannot do with respect to community property like shared finances, retirement benefits, and beneficiaries in estate plans.

In most instances, because of the ATROs, it means that you cannot legally portion out a joint bank account after a petition for divorce is served.

Before a divorce is filed, joint bank accounts may be divided and transferred into individually held accounts. It is advisable that couples close joint accounts together if at all possible. Make sure to cancel any automatic payments and direct deposits and reroute them accordingly.

The general rule is that bank accounts are community property and they are shared equally as part of a divorce settlement. There are exceptions to this, but broadly speaking, if anyone takes more than half of what is in a shared account, the court has discretion to order a reimbursement to the other party.

 

Maintaining Traceable Records of Expenses

It is not unusual that couples keep joint accounts open while the divorce is ongoing if that account is used to keep up the household. It is important that detailed financial records are kept, and that any withdrawals are easily traced. If the withdrawals are to pay expenses related to maintaining the home and family, then detailed accounting is necessary if one is seeking reimbursement.

If you’re in a situation where you think the other party will take more than half of the account, keeping detailed record of the finances offers protection as well. The burden of proof is on the one seeking reimbursement that there is an account and the amount of the funds. It is a lot easier to shift the burden on the opposing party by having an accurate snapshot of the amount at the true date of separation.

Strengthen Your Position by Budgeting for Your Future

It’s important that you map out a budget for after your divorce is settled. This is a chance to take stock of your income and expenditures right now, and in the foreseeable future.

The purpose here is to gain a clearer picture heading into a settlement agreement. If you understand the dollar amount needed to meet your basic needs, you can move through a divorce more confidently and in a better position to negotiate.

Understand that calculations for spousal support and child support are formulaic in nature. Your attorney will be able to provide close estimates once you provide the financial documents to move ahead with a divorce.

Start by preparing two budgets: The first one is barebones, containing only what you need to survive—four walls, food, car, insurance, child care, and other necessary expenses for living and working.

Barebones Budget Items Might Include:

  • Housing
  • Utilities
  • Gas – conservative estimate for getting to work and making drop-offs for school and child care
  • Debt repayments – nothing beyond the required minimum
  • Food - essential groceries
  • Phone – the most basic data plan package
  • Insurance payments - health, home, auto, life, and disability premiums
  • Childcare - daycare, school tuition, alimony, child support
  • Personal care - prescription medications, toiletries, work and school clothes, haircuts as needed to look presentable for work
  • Clothing
  • Transportation expenses

Secondary Budget Items Might Include:

The second budget consists of items related to wants and goals for your life post-divorce.

  • Money for savings
  • Investments
  • More aggressive debt repayment
  • Restaurants
  • Vacations
  • Spending on hobbies
  • Extracurriculars for the kids
  • Charitable contributions

Final Thoughts

Divorce is taking two incomes or a household, and dividing it up in an equal fashion, but now you're now supporting two entities. The reality is that neither party is going to be where they were financially compared to when they were married.

Both parties will have to sacrifice something to take the next step. That's just the reality. The sooner you can realize that your life is going to change, and seeing what is below the line and above the line, the better position you will find yourself in.

 

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