A WHITE PAPER PRESENTED BY

Want Control Of Your Divorce? Identify The Financial Issues.

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Clients regularly ask us how to gain control over a divorce

process that seems unmanageable, both emotionally

and financially.

Our Answer?

Take control of your divorce by gaining an

in-depth understanding of the financial issues

commonly triggered in a divorce.

That in-depth understanding will help you

avoid the emotional decisions that can lead to

financial disaster.

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To help you identify these financial issues in your own divorce, we offer this

white paper for your review. We discuss five financial issues you should consider

in your own divorce if you want to take control of the process:

As discussed below, identifying these financial issues is your first step in gaining

control of your divorce. You may want to consider how an attorney and a divorce

financial expert could help you objectively identify those issues and craft

prudent solutions.

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Net Worth

Taxibility Of Your Divorce Settlement

Community Vs Separate Property

Alimony Laws

Emotional Issues

5 FINANCIAL ISSUES DURING DIVORCE

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Your Net Worth May Be Your Biggest Financial Divorce Factor To Understand

The single biggest factor affecting the finances of your divorce will

likely be your net worth. Your net worth is going to be different

from someone else’s net worth, obviously, and that is often the

reason for the differences in divorce settlements among people.

This issue can become a particularly

large factor if you hold a million-dollar

estate and the question of “Whose

fault is it?” arises. Though the days

in which fault determined a divorce

entirely are gone, it is still one of

many factors a court here in Texas will

consider. If the court determines a

spouse was unfaithful or violent (i.e.,

at fault), 1 percent of a million-dollar

estate becomes a substantial sum.

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Net worth will also affect how alimony

and support are calculated in your

divorce. You can see, again, how net

worth can result in different payments

between you and the divorce

settlement a friend of yours may have,

for instance.

How do you go about accurately

assessing your net worth and that

of your spouse? This is only one

of many areas in which a team

of advisors can help you. An

effective divorce attorney coupled

with a financial divorce expert

can provide you with options and

strategies. If the tracing of hidden

assets may be involved, then

this team may be all the more

critical to accurately determining

questions of net worth.

Dif ferent net worths will result in dif ferent alimony and support calculations.

FA C T O R S T H AT M AY

A F F E C T Y O U R N E T W O R T H 1

Home Automobiles

HouseholdItems

Loans

Stocks & Bonds

Cash

Credit CardDebt

RetirementAccounts

Jewelry

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Texas Alimony Laws Have Changed

However, while net worth is often a critical factor in understanding

and taking control of your divorce, it is not the only one and, many

times, not the most important one. For instance, in addition to

the effect of net worth on any alimony payments you may have

to make or be entitled to receive, you also need to consider the

effect of recent changes in Texas alimony law on your case.

Many people in Texas still

do not realize the alimony

laws have changed. If they

do understand the laws have

changed, they often do not

understand how those changes

affect their divorces.

These changes in the law affect a variety of time-sensitive considerations.2

The details and circumstances the court can consider have also been

affected. These changes affect your divorce case whether you are the spouse

making the payments or if you are the spouse receiving the payments.

OLD LAW NEW LAW

none noneup to 3 yrs up to 5 yrsup to 3 yrs up to 7 yrsup to 3 yrs up to 10 yrs

Y E A R S O F A L I M O N YO L D V S N E W L AW S

YEARS MARRIED

0-1010-2020-3030+

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Understanding Your Finances During A Divorce Also Involves Emotions

The potential impact of powerful emotions during a divorce

must not be underestimated. During a divorce, you are making

decisions about how you wish to live the rest of your life and what

you hope to provide for your children.

For instance, if you are like many

of our clients, you will want to

know how your home fits into all

of these financial considerations.

You are probably wondering

whether you will be able to keep

your house or not and where you

and your children will live.

When you are dealing with your

house, you must carefully assess

it in light of the serious financial

considerations involved.

Unsurprisingly, financial decisions often become tightly interlocked with important emotions.

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If the goal of your divorce is to set up a framework that will

provide you with a sustainable structure for success in the

foreseeable future, you will want to analyze the house from a

variety of financial perspectives.

For instance, how much of your future finances can

be allocated to the house? This allocation includes

more than just your mortgage; it includes the

property taxes and the upkeep, just for starters.

If the financial costs of keeping your home leave

you unable to meet other financial and personal

goals in the future, you would be wise to reconsider

keeping it. While the house may appear to be an

asset at first, it may, in the long term, become an

economic liability that prevents you from providing

yourself and your children with the new life you are

working so hard to start.

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The house is only the beginning of the emotional considerations

involved in understanding your financial position during a divorce. Like

the house, many of these emotional considerations will be related to

your children: college expenses, extracurricular activities and expenses

for children who have aged out of child support, just to name a few.

Once you understand these issues exist, you can

then take the necessary steps to address them. If

you feel overwhelmed by these issues or you would

like an objective set of eyes to review some of your

strategies and ideas, an attorney and a divorce

financial expert can deliver the objective guidance

you seek.

College Expenses

TransportationExpenses

Extracurricular Activities

Health CareExpenses

Emotional Considerations Related To Children During Divorce

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Believe It Or Not: Your Divorce Settlement May Be Taxable

Many clients come to us not understanding this extremely

important point. The financial planning they have been doing

during their divorce has assumed the divorce settlement is

not taxable.

The taxability of the divorce

settlement can change what you view

as fair in the division of assets during

your marriage. For that reason, you

will want to be sure to incorporate

that understanding into your

calculations and plan your division of

assets accordingly.

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You Also Need To Understand What The Phrase Community Property Means

As the taxability of the divorce settlement sometimes escapes

early detection, so does the legal technical distinction between

community property and separate property.

Community property in Texas

refers to property you and your

spouse acquired during the

marriage. Community property

will be divided differently than

the property you acquired

prior to your marriage

(separate property).3

Whereas separate property is

allocated to the spouse who

brought that asset into the

marriage, community property

is divided according to what

the court itself considers fair.

This point matters because

you may walk into the

courtroom thinking an asset

is clearly yours when, in fact,

it qualifies under Texas law as

community property.

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You can take steps, however, to maximize your control in this situation.

Rather than leaving the division of assets for the court to decide, you

can work with your soon-to-be-ex spouse to create a legal agreement

for the court to approve. That agreement can set out the terms of how

the assets will be divided.

Such an agreement can prove

particularly helpful when issues arise

regarding retirements and pensions.

Retirements and pensions can be

treated in a variety of ways, but if

you are concerned about how these

accounts will be divided, you will

want to be very proactive in creating

an asset division strategy. Because

of the complicated nature of the

laws and rules governing retirements

and pensions, you can again assess

whether you want to involve an

objective outside observer who

knows how the courts in your area

approach these issues.

C O M M U N I T Y P R O P E R T Y

Property purchased with income

earned during the marriage

Dividends, interest, and capital gains

earned on community property

Dividends and interest earned on

either spouse’s separate property

during the marriage

S E PA R AT E P R O P E R T Y

Income earned before the marriage

Capital gain on separate property

Any property acquired by gift

or inheritance

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To Understand Your Finances, You Should Consult A Divorce Financial Expert

As we have noted many times above, you do have options

available in assessing all of these issues. Today’s divorce attorneys

understand these issues, and they also understand your personal

needs in these matters.

For that reason, sophisticated

counsel today often works

with outside financial experts

to assess and plan a divorce

strategy. These financial

experts focus not just on

finances in general, but on

finances during a divorce

in particular.

Divorce financial experts can assist

you not only in understanding the

calculations, but also in dismissing

a number of popular divorce

financial myths. Perhaps you have

heard of some of these myths:

I am required to divide my retirement.

The wife will always get the house.

Everything gets divided 50-50.

Your case will be handled the same as everybody else’s.

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Avoid Disastrous Decisions Based On Emotions

Financial myths often play a significant role in the decision-making

process for those people left to their own devices. That is because

myths appeal to the emotions that often run high in divorce

proceedings. These emotions cause people to make short-term

decisions at the expense of long-term financial consequences.

As a candid advisor, a lawyer’s job

is to provide you with the objective,

third-party perspective you need.

Even when emotions run their

highest during a divorce, you will

know you are making decisions

based on the experienced

judgment of an attorney who

understands how these same issues

have played out in any number of

similar situations.

With objective advisors in your

corner, you can make it more likely

that emotions properly inform

your decisions without controlling

them. Particularly when it comes

to difficult issues like keeping a

house, objective advice can often

put your mind at ease that your

decisions are well-informed and

guided by good judgment.

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You Can Increase Your Control Over Your Divorce

Divorce often forms one of the first steps you can take when putting

your life in order. Unfortunately, divorce also involves a process

with many moving parts. These parts often involve legal and

financial complications.

You can do something, however, to increase your control over your

divorce. Increasing your control over your divorce often means

increasing your understanding of the financial issues at stake. Your

net worth, for instance, has a profound effect on why answers to

your questions will be different from anyone else’s.

To develop effective financial divorce strategies, you want to

involve professionals who understand the financial issues of your

divorce, issues that are often unique to the divorce process and

not understood by professionals with little exposure to divorce.

Now that you understand that these issues exist, the time has

come for you to take your next steps toward your future. We hope

our white paper has helped you develop a better awareness of

these issues and some of the factors surrounding them.

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