Guide to Financially Surviving a Divorce

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Guide to Financially Surviving a Divorce

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Divorce is a difficult enough process on an emotional level without having to worry about the financial costs. Nationally, the average divorce takes nearly eleven months and costs around $15,500, including $12,800 in attorney’s fees at an average of $250.00 per hour. Divorces that go to trial cost even more, averaging $19,600, while those that settle privately pay an average of $14,500.

One of the most basic and important requirements for divorce court is a financial affidavit that provides an accurate picture of your income, expenses, assets, and liabilities. Compiling this document can be sometimes frightening and always at least a little bit overwhelming, if you’re doing it alone.
In this article, we will look at how to financially survive a divorce by doing what is legally required of you while still protecting yourself and your assets.

Dividing Assets & Liabilities

Most couples going through a divorce decide on splitting their assets and liabilities on their own or with a mediator rather than leaving it up to a judge. In fact, some experts estimate that only five percent of cases go to court. If you and your former spouse end up in front of a judge, don’t worry. It is important to look beyond the present and keep the big picture in mind to avoid making any emotional decisions.

There are two different sets of rules when it comes to splitting assets and liabilities, depending on the state you live in:

  • Community Property – This is the rule here in Washington, as well as Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Wisconsin, and Puerto Rico. It means that assets and liabilities are classified as either community property or separate property. Community property is equally divided between spouses, while each spouse keeps their own separate property.
  • Equitable Distribution – All other states are equitable distribution states, which means that assets and liabilities accrued during marriage are divided as equitably as the court sees fit. It’s important to note that equitable isn’t the same thing as equal. For example, in some states, a judge might order one spouse to dip into what other states would consider separate property to make the settlement fair to both spouses.

Community property includes everything that was accumulated during the marriage. Separate property includes everything prior to the marriage along with gifts, inheritances, personal injury awards, pension proceeds (vested before the marriage), or similar types of property given to one of the spouses.

The house is often the most difficult decision. If there are young children involved, the house often goes to the parent that will spend the most time with the kids. If no children are involved, the house goes to the spouse that owns the house as separate property. If the house is community property, the situation becomes a bit trickier and a court may decide for the couple during divorce proceedings or as part of a temporary order.

If you’re a business owner, you’ll have a whole other set of concerns to address (assuming you don’t already have some sort of prenuptial agreement in place).
In addition, you’ll need to sort out distribution of any retirement plans, 401(k), and/or pension plans. Often, courts will implement a QDRO (Qualified Domestic Relations Order) that recognizes the joint interest in such plans and splits them accordingly.

The long and short of it is this: when you end up in divorce court, you and your spouse lose a lot of decision-making power. It is in your best interest to settle privately.
This may require you to give up some items that you feel are rightfully yours. Try to look at the big picture and think about whether these things will make much of a difference to you in five years. If not, then let them go.

One other option to consider is a practice called “collaborative divorce.” This one really only works if you and your former spouse are parting on relatively amicable terms and can decide on the terms of your divorce amongst yourselves without taking it to court. It’s less expensive and lower stress for everyone involved. Check out the International Association of Collaborative Professionals for more information.


Determining Income & Expenses

Fewer than one-third of Americans prepare a detailed household budget each month that tracks their income and expenses. Maybe you never felt a need for one before. You will likely wish you had a budget during your divorce proceedings, because the financial affidavit requires a detailed look at your income and expenses each year.

Before you go into court, take the time to build out a spreadsheet of your income and expenses. Do not rely on your spouse to present an accurate picture of your financial situation. Even if you do not think he or she will be dishonest, it’s still important to present your side of the story in all regards.

This can be a particularly difficult process if your spouse handled the lion’s share of financial matters. Get login information for all your accounts, request statements from your bank, meet with your financial advisor, and take any other steps to build as accurate of a picture as possible.

Click here to download our retirement planning guide.

Many fixed costs are easy to find, such as your mortgage, real estate taxes, insurance, cable bill, internet bill, car payment, gym membership, and cell phone bill, which makes them a perfect starting point. You can usually find these numbers on account statements that are mailed or emailed or by looking at your bank statement for the past month.

The next step is calculating weekly costs, such as groceries, child care, gas, parking, lawn care, dry cleaning, entertainment, and allowances. While it may be tempting to just look at last month’s bill, you should take an average throughout the year to get a more accurate picture. After all, you may have gone on vacation last month and not paid for groceries or child care, which would give you an unrealistically low estimate for these categories.

The final step is to take a look at your uneven and/or random costs that occur throughout a given year, such as utilities, car repair, medical costs, holiday gifts, and vet bills. It’s also important to include spending that doesn’t necessarily occur every year, such as vacations that you might take every other year or major medical procedures. Average out these expenses to come up with a monthly cost, as if you were saving for them on a regular basis.

Household Inventories

Most people are aware of the need to calculate their assets, liabilities, income, and expenses, but it’s easy to forget special or sentimental items in the process. During a divorce, each spouse should create a separate checklist of household items that are important to them.

The easiest way to create this checklist is to create categories for different items, such as artwork, furniture, books, and clothing. When adding items to these categories, it’s important to assign a monetary value to each of them. Courts usually assign flea market values, even when items are new, so if you have documentation of value, it’s important to include it.

Finally, be sure to capture video or still images of everything in the order that they appear in the checklist. If your list seems too long to document, at least photograph the items with the greatest value to you. It’s important that the court understands what item is being considered when it assigns ownership rights to one spouse or the other.

What to Ask a Lawyer

Divorce attorneys constitute the bulk of most divorce expenses. At a cost of between $150 and $350 per hour, you’ll want to come to meetings prepared to ask important questions and get the answers you need quickly.
You’ll want to discuss a few issues up front with your lawyer:

  • Fee Structure – Will they bill you for each hour spent on the case, including the time spent answering questions? Or is it a fixed fee? Since divorces can take months to finalize, you need to be prepared to cover the costs.
  • Divorce Procedure – What is the divorce procedure in your state? Most attorneys can provide an estimate of the timeline. If you work full-time or have a busy life with children, this knowledge can help prepare you for what lies ahead.
  • Alimony Issues – Different states have different rules when it comes to seeking alimony from the other spouse. For example, some alimony issues depend on the length of the marriage or discrepancy in earnings between spouses. Ask your attorney about these laws to provide an idea of your liability or benefit.
  • Child Custody – This is the most important, and potentially most difficult, matter in any divorce with children. If you can’t privately agree on who will retain custody, it’s important to understand the factors that are important to state judges from the beginning. Your attorney should provide some idea of the odds of custody and any challenges. Keep your children out of the proceedings as much as possible and try not to speak negatively about your former spouse around them. While you are understandably upset, that other person is still their other parent.
  • Asset Splitting – Lawyers should be able to tell you how states handle splitting assets, which can help you prepare ahead of time.

It’s also important to shop around for the right divorce attorney. Choose three potential attorneys and meet with each of them before making your decision. If the cost is out of your range or if there are any red flags, move on to the next attorney and find one that is right for you.

The Bottom Line

Divorce is a stressful and expensive time, but there’s a high cost to making any mistakes during the process. By following these tips, you can help ensure that you financially survive a divorce.

A financial advisor can also help during these times by providing objective advice to help minimize costs and divide assets in ways that make sense.
Contact us today for a free consultation to learn more about how we can help.

Dale Terwedo, CFP, ChFC, CLU, BFA

Dale Terwedo, CFP, ChFC, CLU, BFA

Certified Financial Planner and Founder

When I founded my original practice in 1983 and then TFS Advisors in 2008, I had one goal – to bring confidence and clarity to my clients’ financial lives. As I worked with clients for over 38 years, it became apparent that the pre-retirement transition was often the most challenging both financially and emotionally. With so many moving parts, clients felt overwhelmed and fearful that they’d miss a key detail that could jeopardize the retirement lifestyle they’d been working toward.

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How is child support and alimony treated for qualifying for a mortgage?

Ask An Expert

How is child support and alimony treated when qualifying for a mortgage?

Jason Conger Financial Advisor

Answered By

Jamie Minster

Mortgage Loan Officer



How is child support and alimony treated when qualifying for a mortgage?




In order for support to be utilized as qualifying income, the following criteria are required.

  • It has been received for:
    • 6 months, with a conventional loan
    • 3 months with a VA loan
    • 12 months with a USDA loan
    • 3 months with an FHA loan
  • It must continue for a minimum of the next 3 years after the closing date.
  • It is documented with a divorce decree, separation agreement, court-ordered or other legal written document is in place.
  • Voluntary payments are not typically acceptable.
  • Proof of receipt is required, by way of canceled checks or bank statements.

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Mortgage Loans & Divorce – What Every Woman Needs to Know


Mortgage Loans & Divorce – What Every Woman Needs to Know

Divorce can be devastating. Everything changes. A new living arrangement is one of the first decisions that needs to be made. Buy? Rent? Stay in the home or downsize?

I was at a networking lunch and met Joanne Rogers, Vice President of Mortgage Lending at Guaranteed Rate. I invited her to answer some of the top questions she gets when she meets with women who are going through a divorce.

Do alimony and child support count as income?

When you apply for a home loan, you’re required to certify your income, offer proof of employment and show that you’re a good credit risk. Many people are not sure what to write down when it comes to reporting child support payments, alimony, and other income as a result of a separation or divorce.

How do you include income from alimony payments and additional financial support in your loan application? More importantly, how does your lender regard such payments?

The first step in getting lenders to recognize this as a legitimate source of income. Do this by showing proof that such payments are happening on a regular basis. Many couples who enter divorce proceedings agree to informal child support arrangements or alimony payments. Unfortunately, the lender is not obligated to recognize such arrangements.

In fact, for alimony or other payments to be considered as income, there must be a court order or other legal documentation showing that one party is legally obliged to pay the other party.

A signed and recorded Divorce Decree, Separation Agreement or Court Order is sufficient in most cases, as they state the following:

  • The party paying alimony or child support must be obligated in writing to pay.
  • The payer must be obligated to continue paying for a minimum of three years after the loan closing.

Additionally, there must be evidence of complete, on-time payments for at least 6 months (FHA requires 12 months when alimony or child support is greater than 30% of total income).

If payments are made on an inconsistent or sporadic basis, the income is not acceptable to qualify the borrower.

How do my alimony and child support payments affect debt-to-income ratios?

Payments must be considered as part of the borrower’s recurring monthly debt obligation when the borrower is required to pay alimony or child support under a divorce decree, separation agreement, or any other written court order (and payments must continue for 10 or more months).

Voluntary payments do not need to be taken into consideration.

The lender has the option to reduce the qualifying income by the amount of the court-ordered obligation (Fannie Mae Conventional allows this, and often is necessary to reduce debt to income ratios) in lieu of counting as a monthly liability.

Payments that are treated as a reduction in income must be noted as an adjustment to income on tax returns/transcripts.

What is the best way to document complete, on-time payments?

Schedule automatic direct deposits from payer’s bank account for the exact amount and due dates per the court order. Cash is unacceptable as there is no way to document receipt. Income must be provided on Federal tax returns and confirmed on lender-obtained IRS tax transcripts.

My child is 16 years old. Can their child support be counted as income?

If your child will be considered a legal adult at 18 and there is no proof of at least 3 years of a continuance of child support, then it cannot be counted as income.

Navigating divorce is difficult even in the best of circumstances. Make sure you get the facts and protect yourself financially for the next chapter of your life.

Taking a thing apart is always faster than putting something together. This is true of everything except marriage. ― Joe Hill

We will provide you useful and timely information you can use to be #financiallyfearless