As difficult, contentious, and unpleasant as your divorce process has been, however, you can create an exponentially worse situation by making one or more financial blunders. In an effort “to get even,” however, you can dig yourself a hole from which you may struggle for years to get out.
1. Stop paying bills – Ever heard of cutting off your nose to spite your face? So, you’re separated from your spouse and you’ve been the family breadwinner. You’ve always paid the bills, from groceries to gas to garbage removal. Now, you’re going to show her. No more free ride! You stop paying. If not only for the fact that your children need a warm place to sleep, food to eat, and a clothes on their backs, there is a legal term called pendente lite, which means, literally, “while the litigation is pending.” In a divorce case, a pendente lite order provides for the support of the lower income spouse while the divorce process moves through the court. If you’re the higher income spouse, you will eventually have to pay up, but you’ll likely accrue additional legal fees, fines, or judgments in the process. What’s worse, if you stop paying the mortgage, for example, and the house is foreclosed, then the marital assets are reduced. So, you’ll both get less and your credit is severely impaired.
2. Make an extravagant purchase – Wow. You’ve had to put up with a lot of stuff, huh? For all the trouble, you want to treat yourself. You deserve it, right? So, you go out and buy a motorcycle, a boat, or a sports car. What’s wrong with that? Well, the truth is, nothing’s wrong with that . . . if you have the cash. If your name is Donald Trump, well it’s not really a problem. If your name is almost anything else, then you need to be a little more cautious. There may eventually be a time when you can buy your toy, but it will likely be advantageous to wait until the dust settles and you’re able to make a new budget before reducing a big hunk of your cash liquidity or taking on a big, new, monthly payment.
3. Don’t hire a lawyer – You’ll only have one chance at getting the divorce settlement right, at least with the woman sitting at the other table in the courtroom. Unless you happen to be a divorce attorney yourself, you may not even know that the legal rules, procedures, and regulations even exist. If you don’t know all that legal stuff, but your soon-to-be ex-spouse does, then you’re likely to get the short end of the . . . checkbook. If you have actually been admitted to the bar, well, you know what they say. “A man who is his own lawyer has a fool for a client.”
4. Reduce your income/cut-back on work hours – You’ve got this great idea to save yourself some money in the divorce settlement. You cut a deal with your boss to temporarily reduce your hours or take a short-term demotion with a reduced salary. Then, when the divorce is settled, you get those hours or your old job back with the higher salary, right? Well, you aren’t the first guy to think of it, which the reason courts take an average of several years’ reported income as a basis for alimony and child support. However, things can really go the wrong way if the boss, with whom you cut the deal, is fired or the economy takes a downturn and your employer freezes pay rates. You could be stuck with that lower income.
5. Max out your credit – The fact is, good credit saves money and bad credit costs money. Every financial decision you make rolls up, or down, to your credit. If you stop paying your bills – like the mortgage or the car payment, if you make a big purchase beyond your ability to pay, or if your income declines and adversely affects your payment history, your credit score also declines and the cost of money goes up. (Your ability to borrow money may even vanish if your credit score gets really bad!) The way the credit issuers look at it, low risk – low reward, high risk – high reward. For example, a credit card may charge 2.99% interest for a person who has a credit score of 775. That would be equal roughly to $30 a year for an average balance of $1,000. That same credit issuer might charge 14.99% for the same credit card to a guy who has a credit score of 625. That same $1,000 balance would cost almost $150. Now, imagine your average annual credit balance is $20,000 instead of just $1,000. That money would cost an additional $2,400 a year!
So, the short answer is, don’t let your emotions cloud your judgment during what has been a very stressful time in your life. If you have any questions about the financial part of your life, I encourage you to seek out assistance through a credit counselor, a certified financial planner, a certified public account, and/or an attorney.
May the force be with you.
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