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Divorce 101
Lay the groundwork before a split-up to avoid having to ratchet down your lifestyle too much.
Families and finances

10 ways to avoid divorce disaster

Nearly half of all marriages end in divorce. Yet all too often couples hurriedly go their separate ways without crunching the numbers to see how a breakup will affect them five, 10 or even 20 years down the road.

A newly inked divorce decree may help ease the emotional strain of a failed marriage. But a settlement that doesn't make good financial sense could mean you'll have to make some undesirable lifestyle adjustments down the road.

Consider these 10 ways to lessen the financial impact when it's time to call it quits.

10 smart ways to part
  1. Settle out of court.
  2. Keep emotions out of it.
  3. Bone up on financial matters.
  4. Deal with debt strategically.
  5. Check financial statements.
  6. Alimony vs. child support.
  7. Revise lifestyle budget.
  8. Don't forget retirement.
  9. Hire a good financial team.
  10. Protect property interests.

1. Settle most issues out of court
In hotly contested divorces where anger and other emotions run rampant, legal fees can quickly eat into assets that could have been used for other things.

A divorce can cost from a thousand dollars (for an uncontested divorce) to hundreds of thousands or more, according to divorce360.com, an online resource for divorce information.

Spousal support, child support and division of property are the top three issues in the majority of divorce settlements, but couples who are able to communicate can arrive at an agreement without an attorney, says Ed Sherman, author of "Make any Divorce Better!"

Sherman, a former assistant district attorney for Los Angeles County and an advocate of self-help law, says couples trying to settle basic disagreements within a legal setting are doing themselves a disservice because once the argument is in the legal arena, costs skyrocket.

"It's like throwing gasoline on the fire because there's nothing at all in the law or in a traditional attorney's office that will help you reach an agreement," he says. 

It's usually best to settle as many issues out of court as possible, he says. Oftentimes, this can be done with the help of a mediator or arbitrator.
 
Find one with a background as a judge or an experienced family law attorney who understands the laws in your state, Sherman advises.

You still generally need a court to approve any settlement, but at least you'll spend less time and money on legal fees. 

Sherman cautions that mediation and arbitration do have some shortcomings, namely when you need emergency monetary support or visitation rights.

In those cases, you may need to seek immediate court assistance. 

2. Avoid letting emotions cloud your decisions
For many couples, divorce is an extremely emotional time that can lead to bad financial decisions, especially when it comes to divvying up property.

"The financial decisions we make in divorce that are emotionally based are absolutely the worst decisions that we'll ever make," says Violet P. Woodhouse, author of "Divorce & Money: How to Make the Best Financial Decisions During Divorce."

Woodhouse, an attorney and Certified Financial Planner based in Newport Beach, Calif., says people make bad decisions during a financial crisis because they tend to hang onto things that are familiar, such as a home.

"Two years from now those emotions are not going to be there," she says.

Allow yourself a cooling off period before making financial decisions.

3. Learn how to manage household finances
In many marriages, one partner takes charge of the family finances because it's convenient, but that can mean the other partner is left in the dark about the overall financial picture.

"They need to gather documentation and be fully aware of their financial affairs," says Amy C. Boohaker, an attorney and Certified Financial Planner based in Sarasota, Fla.

"That means in-depth knowledge of not just what your assets are but what your liabilities are."

Bone up on financial literacy concepts. Bankrate's extensive archive of useful articles is free and easy to understand.

4. Deal with debt strategically
One of the biggest sticking points in a divorce settlement is dividing marital debt.

Your ultimate goal is to be divorced from your spouse, including his or her debts.

If you and your soon-to-be ex-spouse have joint credit cards or other revolving debt, start paying down your account balances as soon as possible because you're both equally liable for that debt in the eyes of the creditor.

-- Posted: July 21, 2009
 
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