It is often difficult for divorcing parties to adjust to the limited budget that results when parties move from a dual income household to a single income household.
There are several practical tips parties can follow to make the financial transition of the divorce easier.
First, it is always a good idea to keep a reserve of cash available in bank accounts so that parties have sufficient money to divide and use for the payment of a down payment or rental deposit on a new residence, and to pay for moving and living expenses during the transition of households.
Also, it is important to cancel joint credit cards to avoid surprise charges on joint credit card accounts made by the other spouse.
When you are going through divorce, it is important to pay close attention to any joint bank accounts. If the parties elect to keep a joint bank account open during their divorce case, this can make it easier for the payment of community bills during the separation and divorce. However, the potential downside is that if the parties don’t effectively communicate about the accounts, one party or both can overdraw the accounts, making both parties liable for the amount of the overdraw and the related bank fees and penalties.
If you believe your spouse may clear out a joint bank account and not fairly account for and divide the amount withdrawn with you, you are permitted to withdraw the funds to safeguard them for division in the divorce case.
The goal of parties in divorce should be to provide full and complete disclosure of each other’s income and expenses, and marital assets and debts. It is only upon a complete disclosure and determination of incomes, expenses, assets and debts that a fair agreement and resolution of the case can be accomplished.
The document in Arizona in which parties disclose their monthly income and expenses is the Affidavit of Financial Information. Supportive documentation required for the Affidavit is the parties’ last three years of tax returns and their two most recent pay statements.
The Affidavit can help parties determine their anticipated expenses when moving out of the community residence. More specifically, it can help determine how much, if any, of their monthly expenses will exceed their income when each spouse is in their own separate residence. Completing the Affidavit early in the case will help the parties more easily plan on how they will make up for any such shortfall, such as with additional work hours or decreasing their discretionary bills.
The best way to identify and value marital assets and debts is to collect the documentation for valuing each marital asset and debt. Relevant records include such things as bluebook valuations for vehicles, deeds for real estate, appraisals for real estate, recent bank statements, investment account statements, retirement statements, copies of insurance policies and statements, and copies of credit card and mortgage statements. Locating copies of prenuptial and postnuptial agreements is also critical to determine the extent of the parties’ community assets.
If one party is getting a larger share of marital assets, the parties may choose to require that party to pay the other party an equalization payment to reflect the unequal division of the assets. It is often helpful to set timeframes in settlement documents for the payment of the equalization payment so that it’s clear to both parties when the equalization payment will be made and one party is not waiting years to receive the payment.
It’s a good idea to require the parties to follow through with their obligations in the settlement agreement prior to the entry of the judgment. This can save parties the time and cost of post judgment enforcement actions on unexecuted terms of settlement.
Also, since creditors are not party to a divorce case, they are not bound by the terms of any divorce judgment. As a result, if one party agrees per the terms of the divorce settlement to be solely responsible for a particular debt, like a credit card debt or vehicle debt acquired during marriage, and then fails to pay that debt, the creditor can still seek to collect from the party who was not assigned the debt in the divorce. For this reason, it is best to have the party who is going to be responsible for a particular debt to be required to pay off the debt with a new loan prior to entry of judgment so there’s no issue of harming the other party’s credit for nonpayment of that debt or having to file a post judgment petition in the divorce case to address the non-payment. FBN
Written by Jennifer Nagel