First 30 Days Blog

05 dec

Three Financial Surprises in a Divorce Case


Divorce is one of the most significant financial challenges that some people may ever face. Many people anticipate some of the major financial costs involved in a divorce, such as alimony payments and child support payments. There are a number of other economic costs that many times are either underestimated or totally unaccounted for.

James Evans, a divorce attorney in Austin, spends a great deal of his time preparing clients for all the financial impacts of a divorce. “Many people appreciate the short-term hard costs, the ones that show up on your bank statement in the first three or four months,” he says. “But there are some other costs that are lost in the shuffle, probably because divorce is such an emotional and financial shock.” Mr. Evans tries to schedule at least one appointment with every client at which money matters are the sole item on the agenda. “A lot of what I try to do is create awareness, as well as remind my clients to plan ahead,” concludes Austin-based divorce attorney, James Evans.

Legal fees

Many people do not realize how quickly legal fees can mount up. Mediation can be an important way to slash both the length of time in the case’s life-cycle and the actual dollar costs: one study found that mediation may reduce time by up to 860 days and the actual bill by up to $9,500.00. Think for a moment about all the things you can do with that much time and that much money.

The cost savings is directly proportional to the mediator’s success rate. When mediating a divorce, try to use an attorney-mediator with experience in family law if at all possible.

Credit score

Although divorce itself is a legal proceeding which has no impact on your credit score, the financial impact of divorce on a credit score can be significant:

  • Many people do not understand that the divorce only transfers legal title of the property in question. Assume that Mike and Jenny bought a house together during the marriage; they are co-borrowers on the note. Jenny may have received legal title to the house, but Mike remains on the note. If Jenny falls behind on the payments, the bank may very well come after Mike for the delinquent amount.
  • Other spouses understand this dynamic all too well, and use it as a weapon against an ex-spouse. If Mike was angry at Jenny for whatever reason, Mike may stop making payments on a joint credit account to ruin Jenny’s credit rating.

Consider re-financing joint debt to remove an ex-spouse’s name from the note, both to avoid future liability for the other person’s missed payments and shield yourself against a vindictive ex-spouse. If refinancing is not an option, remember that you have the right to add an explanation to any negative item on your credit report. Explain that the negative reference is due to a divorce and that you are an innocent victim in the matter.

Asset depreciation

A dollar today is worth more than a dollar tomorrow, and some people fail to properly account for this maxim in a divorce property settlement. The tradeoff between spousal support payments and equity in a capital asset is a good example. Rental property that is worth $100,000 today may be worth substantially less in five or ten years, because inflation erodes the equity, so spousal support payments should be high enough to compensate for the difference.

By identifying and reacting to financial realities before they become financial problems, transition to single life can be much easier financially.

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Posted by Jared Diamond on December 5th, 2013 in Uncategorized | 0 comments

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