Financial Considerations In A Divorce, According To A Family Law Attorney

Getting divorced can be a headache (to put it mildly). Between the emotional toll and the logistical realities of splitting up a shared life, there can be a lot of different factors to consider when filing for divorce. Though finances generally aren't everyone's favorite topic, especially in the midst of a life-changing decision, it's nonetheless an important one when discussing the end of a marriage. Knowing where to start when considering divorce can be especially difficult. Luckily, we recently spoke with Texas-based family law attorney Holly Davis (of Kirker Davis LLP), who has extensive experience with child custody and high-net-worth divorce cases (as well, she regularly shares tips on YouTube, Facebook, Instagram, and X). Specifically, we asked her about what a couple going through divorce needs to consider when it comes to their finances.

Davis recommends anyone considering a divorce spend "at least a month sorting out their personal goals, their fears, and figuring out the least harmful, least dramatic way to communicate their plans with their spouse." While this might sound simple enough, there can be a lot of both financial and life situations to fully assess before moving forward with a divorce. "Don't just file first and think later," Davis said. "Before filing, do a lot of talking and a lot of thinking, and in particular, thinking very specifically about what [you] want [your] new life to look like after the divorce is complete."

When it comes to the end of a marriage, holding up your finances out of emotional distress can lead to prolonged legal action and even longer divorce proceedings. Not only does elongating the process cost everyone more emotionally, but the financial toll can be significant. As Holly Davis explained it to us, "Often, people can become so mired in their feelings surrounding the split that they may start using money or property battles as a proxy for their emotional battles, and not even realize it."

From draining shared assets to keeping you in a state of limbo, it's important not to let emotions cloud financial judgments during a divorce. Instead, Davis argues that you should be looking ahead. "Focusing on the best financial decisions to support your new beginning as a single person on the right foot — which includes planning for housing, child care, and retirement — is a very different mindset from trying to use finances to hurt or punish your ex because 'they deserve it.'"

Plus, even if this is your first divorce, it's nowhere near the first divorce for the family law judge involved in your proceedings. While the emotions of the situation can certainly feel overwhelming, it's an everyday occurrence for the court. Remember that the court's priority is to create an equitable division of assets, which does not include them "deciding who was the good guy and who was the bad guy in your breakup," explained Davis. Worst of all, "judges do not look favorably on unfair, petty, or vengeful tactics."

Similar to separating your emotions from your finances during a divorce, making sure to avoid an overreliance on lawyers can be an important financial decision as well. According to Holly Davis, "Fighting everything out in a lawyer's office or in court is a very expensive process" and "far more expensive than using emotional intelligence and doing the hard work on your own." While not all situations allow for a constructive dialogue between the parties, it can be financially worth it to at least try. Said Davis, "If you can set your hurt feelings aside, set your sights on your financial future, and sit down to hash out a fair financial agreement with your ex, you will make your divorce faster, smoother, and far less costly."

According to a 2019 Lawyers.com survey, the average amount respondents paid for a full-scope divorce lawyer was $11,300, just in attorneys' fees. While some might choose to go with a consulting attorney instead for more limited-scope assistance, 85% of the survey respondents had a full-scope lawyer. This was mainly due to the complicated nature of things, such as alimony, child support, and asset division that can require more involved legal representation throughout the process. However, perhaps the most important statistic to remember is that respondents who ended up needing to go to trial over a contested issue in their divorce paid a whopping 70% more in attorney's fees than those who eventually settled their divorce dispute, and over 340% more than divorcing couples with no contested issues.

An important realization about divorce is that your income will more than likely decrease. Running the budget numbers on your current lifestyle and comparing it to a single income, as opposed to dual incomes, can help you determine how your life might need to change during and post-divorce. Note, you could face restricted access to your shared assets during the course of your divorce. "You're not entirely restricted from using your assets in divorce — you can continue to use your assets to pay for typical living expenses, and for legal fees," explained Holly Davis.

That said, you do have some limitations on how you get to spend your money during the divorce process. Since, ideally, a divorce will equitably divide assets between both parties, managing shared assets responsibly is to be expected from both sides. As Davis explained it, "That means it's not at all equitable if during that process, one spouse decides to drain the bank account by purchasing a big vacation package, giving lavish gifts, or going on a Beverly-Hills style shopping spree."

In other words, when it comes to your finances during a divorce: Proceed with caution. Said Davis, "Your spending habits may need to change. Consult your attorney about the laws of the state in which you are filing. But in general, now is not the time to make a major purchase like a luxury car or a boat. It's a time to be cautious.‌"

Different states have different divorce laws governing everything from residency requirements to waiting periods to what constitutes community property. It's important to understand what your state might require or legally expect from the divorce process. As for community property, Holly Davis said, "It's also important to be aware that in community property states, a spouse has a right to access information about the community estate." This includes their partner's salary, their tax returns, and their stock information, as well as any vesting schedules and employee compensation agreements.

As of August 2024, the United States has nine community property states in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In addition to financial materials access, community property states also mandate that all assets acquired during the length of the marriage be split 50/50. This means that, for example, even if you and your spouse each have your own car — with your name on the title — both cars are considered community property and, therefore, would need to be split 50/50.

This policy is largely meant to cut down on the oftentimes ugly fighting that occurs over assets during divorce proceedings. Keep in mind that if you and your spouse file taxes separately (there can be some significant reasons to file separately as a married couple), it can be much more difficult to determine what constitutes community property. On top of this, state laws surrounding things like investment income, Social Security, and mortgage interest can be particularly complicated.

Understanding your specific tax implications (as early as possible in the process) can be extremely important when negotiating any mediation or settlement agreements in a divorce. Not only can this make for a more even playing field during the negotiation process, but it can also help to prevent any large surprise tax bills that might happen after the divorce is finalized. For this reason, Holly Davis suggests hiring an adviser. "Having an independent financial adviser communicating with your legal team from the very start also helps you identify assets that are tax-affected, and helps you determine whether or not you want to fight for that asset, or propose a split of any taxes that will be owed in a divorce," she said.

Another thing to consider about your taxes as a single person post-divorce is who will handle your tax preparation. If you and your former spouse shared a tax accountant, it could be time for a change. Davis explained, "If you are getting divorced, it's time to find a new tax accountant. If you and your ex used the same tax preparer when you were filing jointly, make a fresh start with a new one, and let them know about your marital change." Starting over can provide you with a more complete break from your now-ex while also allowing you to find a preparer that best fits your new needs as a single person (who might now have different tax filings for things like child deductions and/or retirement accounts).