Avoiding as Much Financial Loss as Possible in Divorce

Avoiding as Much Financial Loss as Possible in DivorceThe end of a marriage is a bittersweet event, even if the decision was made amicably. Aside from the emotional toll that comes from separating your life from another’s, there’s usually some sort of financial hardship as well. Divorce means losing half your income — and sometimes, half your savings, too. While there’s no clear-cut way to predict all the things that could cost you more funds than necessary, there are precautions you and your ex-spouse can take to ensure things run smoothly without bleeding each other’s wallets dry.

Avoiding costly headaches by going through mediation

The biggest way to avoid an expensive, lengthy divorce is to do whatever you can to avoid going to court. Once the case reaches court, it could get drawn out (in public, no less) and you may not end up with much of a savings if your ex is one of these “if I can’t have it, no one will” scorched-earth types. Yes, sometimes there’s no way to get out of litigation, especially if one party is unwilling to discuss or compromise with the other, but you will want to exhaust absolutely every other option before deciding that.

Ultimately, the best way to avoid the court is to settle with a mediator. A mediator is neutral third party who works with you, your ex-spouse, and your attorneys and helps you both come up with solutions that work for all parties involved. You won’t be forced into a decision, the mediator won’t take any sides, and it is the cheapest way to settle your disputes by far (assuming you were not able to do so yourselves). In Tennessee, you have to try mediation first, and it works out for a lot of couples.

Once a decision has been made, the case can be submitted and settled, and can then be dismissed without ever needing litigation.

How is a 401(k) divided in a divorce?

When you and your ex are figuring out how to divide your assets, the priority should be avoiding as many fees and taxes as possible rather than simply walking away with the biggest lump sum. You’re not required to have an attorney present for this division, but it might be a good idea; a mistake can cost you a lot of money.

If you and your spouse share a retirement account, then that will be divided as marital property. (Tennessee is an equitable distribution state, so things are supposed to be divided fairly, if not 50/50). You may even be entitled to part of a pension to which you did not contribute, depending on your exact circumstances.

Anyway, what usually happens when you split a 401(k) is that you get a qualified domestic relations order, or QDRO, which allows you to move money out of the account and into another. There is a penalty (under federal law, by the way) for taking money out of your 401(k) before you reach the age of 59 1/2, and divorce costs enough money without additional penalties, so a QDRO lets you avoid that penalty. Plus, if it’s your retirement account, your soon-to-be-ex is the one who has to pay the taxes on the distribution at the time.

Do I have to divide up all the accounts?

Maybe not. If you and your spouse can agree, you can simply say “I’ll take this money and you take that money,” and be on your merry way. But definitely don’t try this without reviewing it with an attorney, first. Judges will pretty much do whatever your separation agreement says you want to do, so if you end up losing a lot of money, it’s on you.

Want to save money? Be willing to compromise

In the end, the best way to save money is to start off with the notion that a good compromise leaves both parties a little unhappy. If you think you’re going to enter mediation or a courtroom and scream “this good-for-nothing so-and-so ruined my life” and then cry, and you’re going to get everything you want, you’re wasting your time AND your money. NOBODY gets everything they want; it’s just not like that. Yeah, your ex might be a jerk – but even jerks have rights in a court of law.

So, here’s what we’ve found works best:

  1. Be open and honest with your lawyer from Day One. We can’t help you if you don’t tell us the truth.
  2. Don’t hide assets, or try to sneak stuff out of the house. That will end up costing you, in the end. Judges don’t like sneaky.
  3. Return emails, calls, and paperwork on time. The courts are delayed enough because of coronavirus, and dragging your feet isn’t going to get your divorce done any faster.
  4. Make a list with columns titled “Must Have,” “Would Like to Have,” and “Can Live Without,” and go over that list with your attorney. It might turn out that the only thing you really care about Aunt Clara’s Hummel collection, after all.
  5. Remember that your lawyer is on your side, and your mediator is neutral. We’re not out to “get” you, so picking fights with us won’t help.

No matter what you decide, the process of divorce can be lengthy, confusing, and stressful. Getting a qualified attorney on your side early on can help both of you avoid expensive and usually unforeseen consequences, even if you’re able to mediate and settle without going to trial. Trust the Knoxville divorce attorneys and mediators at LaFevor & Slaughter to be there for you every step of the way, from answering your questions to supporting you through any avenue the process takes you. For more information, call us at (865) 637-6258 or fill out our contact form today and let us put your mind at ease.

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