5 Divorce Myths About Your Finances

When couples start to consider divorce, generally their first inclination is to go down the google search trap or quietly start talking to their friends. As we all know, we can google all day until we find the answer we think we like the best. Friends and family can be much–needed support during this difficult time, but they can also unintentionally fuel the fire with stories they have heard from their other friends or their own conception of fairness. Below are a few of the misconceptions I see the most.

Myth #1: We have always kept our money in separate accounts so that money is not subject to division.

Unfortunately this is not the case. Any money earned during the marriage, regardless of where it is held, is considered community property. Generally, community property is split down the middle in the divorce. For example, even if spouses each continued to receive their paychecks via direct deposit, that money is considered community property and anything bought by those funds is considered community property. This is the default rule in California. Prior to marriage, if you and your soon-to-be-spouse want to keep all of your earnings and assets during the marriage separate, then a prenuptial agreement may be in order.

Myth #2: I bought my house before marriage, so the property is my sole and separate property.

Families wonder what happens to the house in a divorce. Although you may have bought your house prior to marriage with separate property funds, if you and your spouse have lived there together and made payments on the mortgage, there is a community interest in the property. If this is the case, you will need Moore Marsden calculation to determine how much community property interest is in the house. Also note that a refinance during the marriage may very well have changed the character of the property, in which case it may no longer be separate property. If you are in a situation where you have refinanced during the marriage, you will definitely want to consult with a certified divorce financial planner (CDFA®) to determine exactly how much of the house is considered community property.

Myth #3: My spousal support should be an amount that allows me to continue my current standard of living. 

There are 14 factors that are considered for spousal support. Although the standard of living during the marriage is considered, it is not the only one considered. Current income, earning ability, separate property, monies contributed to education during the marriage and the length of the marriage are only a handful of the other factors considered. Ultimately, the bottom line is that when one household with a certain amount of resources is split in two, both parties will experience hardship one way or another for at least the first year or two. It takes time to rebuild financial stability, but it will happen.

Myth #4: I am not responsible for my spouse’s debt.

All debt acquired during the marriage, regardless of who’s name the debt is in, is considered community debt. For example, if one spouse builds credit debt on their own card without his/her spouse knowing, the debt is still considered community debt. Spouses are still liable for each other’s debt, even though he/she was unaware of the debt. Each spouse’s credit can be hurt by lack of payment by the other spouse. It is important to understand your credit report. Everyone is entitled to one free credit report from each of the credit bureaus. Go to https://www.annualcreditreport.com/index.action to obtain your free credit report.

Myth #5: I am allowed to stop paying for my spouse’s health insurance once the initial divorce paperwork has been filed.

This is false. The spouse carrying the health insurance for the family, including the spouse, cannot make changes to their health insurance until the divorce is final. The divorce is considered final when there is a court ordered decree in hand that can be submitted to the company’s human resources. It does not matter whether this is outside of the open enrollment window. The divorce is considered a qualifying life event which means that a change in health insurance due to these circumstances can happen at any time during the year.

These are only a few myths that exist surrounding how finances are handled in divorce.Speaking with a CDFA® can help you map out a game plan. The numbers are the numbers – in other words, there are rules defining what is separate and community property. Once we understand the full financial picture, then you and your soon-to-be-ex-spouse can negotiate what is important to you, financially and emotionally.

Schedule a 30-minute complimentary consultation with me to get a better understanding of the financial issues you are facing as you consider or move through your divorce.