Divorce is one of the hardest things that a person can go through. It touches every part of your life: children, income, assets, retirement, and your home. For many people, the untangling of their marriage is almost unbearable. We always advise our clients that the process is hard but the only way to complete it is through it. There are no short-cuts in divorce and often, there are unpleasant surprises: financial and as it relates to custody. This article will address financial surprises. Custody will be addressed separately.
Family law has very strong disclosure requirement for both parties. Without any requirement for formal discovery, the parties must disclose as much financial information as possible. Failure on either side to comply with these requirements carry stiff penalties that can include losing the entire value of the asset.
In this field for nearly 2 decades, I have seen some things take parties by surprise. Here is my list of top surprises in family law cases:
California is a Community Property State: California is a community property state. This means that income earned during marriage, property bought during marriage, and investments with returns during marriage, are generally all divided equally, regardless of how title is held. With few exceptions, like inheritances and gifts, assets will be equally divided if they were acquired during marriage. This fact surprises people who take title to property in their own name during marriage or have bank accounts in their own name. Learning that these assets shall be equally divided can come as a surprise if the thought is: “I earned it so it's mine,” going into a divorce.
Title is not Controlling: Family law is different from civil law. In civil law, title to property is controlling but in family law, timing is controlling. This is one of the most surprising facts to clients. If a property is in one party's name, that does mean it is that party's sole property.
Support: When it comes to spousal support (alimony), it is nearly a 100% reality that both the party receiving support and the party paying it are unhappy with the amount of support and length of time. The problem with support is that supporting two household is more expensive that one and can leave both parties with less income and more debt than they had anticipated. Frugality is key when transitioning into a non-married status while adjusting to amount of funds available.
Unknown Debts: This is one area that can be very surprises for clients. Either party can inquire debts during the debts that both parties are responsible for at the end of the marriage. There are very limited circumstances where debts can be excluded for division. It is not uncommon for one spouse to run up credit card debts that the other spouse is unaware of during the marriage.
Where am I Going to Live: Selling the family home is almost always inevitable in divorces. With current interest rates, this is an even harder pill to swallow as it is almost impossible to refinance a home and retain an interest rate closely comparable to the low rates enjoyed for years. But this is the reality of divorce and what was one time possible is now very difficult.
Dividing Retirements: For many clients, dividing the retirement accounts is as painful as selling the family home. This is understandable because retirement assets, like the family home, represent security. It can be a tough pill to swallow, but the law requires that it be divided and usually by an attorney who is an expert at dividing these types of accounts. That cost can increase the pressure in an already pressure filled process.
Attorney's Fees: Sticker shock! Divorces can be expensive and even more so when dealing with spouses that refuse to provide information and or want to use the courts as a means to punish the other side. The law favors resolution of conflicts and when the other side stands in the way of that there can be financial consequences in the form of sanctions. But even divorces without conflict can be expensive.
Prepare for the End: The hope when someone gets married is to have a life-long marriage, but when that is not possible, it is important to keep these surprises in mind and be prepared for the process. Known the finances in your marriage. Including the income and property held by both of you. Read and review your tax returns before filing and ask questions if you do not have knowledge of everything contained therein. Not knowing about the finances during marriage is not going to prevent you from being responsible for them in a divorce.
The most important thing here is to hire an expert to help you navigate the process. While attorney's fees can be expensive, the cost of not providing full disclosures or not understanding your rights as a spouse can be devastating.