You should start to gather financial statements and documents as soon as you know you are getting a divorce. If you are in the planning stages of your case you should start to pull documents from files and start to make copies. Do not take documents from the home and lose them, destroy them or do anything else where your spouse cannot gain access to them. This is something that will violate future orders and can land you in some hot water with the judge.
However, you should start to think about what you will need to verify income, investments and other financial assets. Do not assume that you will be able to gain access to your safe, files or home computer anytime you want. This is not necessarily true, especially if your spouse is able to get you barred from the home- even temporarily. So, if you are given the opportunity to access financial documents you should make physical copies or simply copy and paste the documents to a flash drive or to “the cloud” for future reference.
This can take some time to do. If you are not a super organized person, or it just doesn’t come naturally to you to think ahead this will take some effort. However, if you go through the effort now it will save you a ton of time and attorney’s fees later on. Oh yea, I forgot to mention that if you do not search for and organize your financial documents now you will have to do it eventually once your divorce begins. At that point, you will rely more so on your attorney and their staff to assist you. The attorney will charge you for the privilege of having him or her look through documents and computer files with you. Not a great plan.
Community versus separate property
Texas is a community property state. I bet if you read through five random blog posts on the website for the Law Office of Bryan Fagan you will learn this fact. Community property is any property/debt that you or your spouse have acquired during the course of your marriage. There are some exceptions to this rule but for the sake of our discussion today you need to know that some of the property you own is yours separate from your spouse, is your spouse’s separate from you, and the rest is owned jointly by you and your spouse.
The entire purpose of the financial/property side of your divorce is to classify property as community or separately owned and then to divide the community property between the two of you. The typical thought behind dividing up community property is that it is a 50/50 split in most cases. Half of the property goes to you, half of it goes to your spouse. This is not necessarily how it goes in real life- especially if you and your spouse negotiate and settle your divorce outside of court.
Most divorces do settle in mediation or in informal settlement negotiations. This means that you and your spouse can be extremely creative in how your community estate is divided. A judge, on the other hand, is much more likely to go “by the book” and split the metaphorical baby in two. There are benefits to both methods, but I will always prefer it when spouses can work out solutions on their own. After all- nobody knows the two of you and your situation better than one another. It is usually better, therefore, for the two of you to put your heads together and come up with an agreement rather than to have a judge attempt to do so. He or she will never get to know you well enough to fairly divide your property over the course of a one- or two-day trial.
Spend some time listing out the assets that you own
An inventory will be an essential part of your divorce case. For one, the court will require that you file an inventory prior to any temporary orders hearing. This is the hearing where responsibility for bills will be divided between you and your spouse, possession of the house will be decided on a temporary basis and custody of your kids will also be decided. It is an important hearing and will occur in the event that you and your spouse are not able to settle your differences in mediation.
The judge will be relying on an inventory of your property- sort of a mini-budget for the judge to see how much income is earned by each of you, what your monthly expenses are and what property is in place. He or she will take some time to examine each of your estates and in order to see who can afford to pay what. Also important is which one of you have been paying a certain bill for an extended period of time. For example, if you have been responsible for paying the bills out of your income due to the fact that your spouse hasn’t worked in decades, I can say pretty confidently that you will continue to be responsible for that bill until the conclusion of your divorce.
Your spouse may ask the judge for you to be ordered to pay temporary spousal support during the divorce. However, if the inventory suggests that you lack the resources to pay the support then it cannot be ordered. This is true even if you and your spouse have been married a long time and your spouse isn’t working (yet). You can’t get blood from a turnip, as they used to say. The same is true in your divorce. You can’t make someone pay something that he or she does not have.
Primarily, however, the inventory serves the purpose of informing your spouse and the judge what property and assets are owned. Rental homes, vacation homes, electronics, vehicles, antiques, artwork, etc. are all the sorts of things that I imagine many of you reading this would have on your own personal inventory. Don’t forget about your investments like stocks, bonds, mutual funds and other similar savings/investment vehicles.
Collect legal documents as well
If you are over the age of 18 I believe that you need a will. This is true even if you have no money or assets. This is true even if you not married and have no immediate family. A will, simply put, will direct your executor to take the necessary steps after your death to make sure that your estate is dealt with efficiently and without issue. Leaving it up to the government to see to it that your matters are attended to properly is a bad idea.
If you have power of attorney documents, health care directives, trusts or a living will these will also be relevant in your divorce. You should have copies of them on your computer or at least your file cabinet in case your attorney requests one.
Tax returns are essential for your divorce. Your income and that of your spouse will be central issues in the discussion of your community estate. Income tax returns for the past five years will be handy to have in preparation for your divorce. Pay stubs are also nice to have so the judge can see where your money is going and how much you earn each pay period. Tax returns for your family business would be needed if that applies to you. Contact your CPA or accountant to request copies if you do not have any at home.
Profit and loss statements from the business, as provided by your CPA are important when it comes time to value your business. It is true that you will likely have to spend some money on a real appraisal of the business, but a profit and loss statement is a good place to start when attempting to determine the value of a business. If your business has a regularly occurring debt amount that is paid on an ongoing basis.
The other side of your community estate- debt
Debt is the other side of the coin when we consider the parts of your community estate. Unfortunately it is the much less fun part of the equation. Debt is something that should be avoided at all costs in my opinion.
You will also have expenses/liabilities to consider when dividing up your community estate. You should do a detailed budget of your home prior to the divorce beginning so that you know, and you can explain to a judge how a cost impacts your family and who should be the one to shoulder that responsibility both during the divorce and afterwards.
Liabilities are things like taxes, mortgage payments, credit card bills and home equity lines of credit. You can do yourself a favor during the divorce and sweep out the corners of your financial life. Get organized now and propel yourself into a post-divorce life that allows you and your kids to have a future worth fighting a tough divorce over.
Whatever debts and liabilities that you have will be paid for by your single income, rather than by the two incomes of yourself and your spouse. College expenses for your children, food, clothing, credit card bills, car payments- all of it must now be divided and then paid by one of you. This is especially important when you begin to consider whether or not you want to hang onto the house during the divorce. Doing so may sound great in theory, but the reality is that the houses can be a weight around your neck if you are not able to make the payments each month. Consider your options and you may come to the conclusion that the house isn’t worth the risk that you take on and accept.
Look at your credit card bills, mortgage payment activity and checking account statements to get an even better idea of what your monthly bills and payments have looked like in the recent past. Take those costs that you know are going to be repeatable and then project future costs into your budget. Will you have a rent payment when no rent payment was in play before the divorce? What about your child support obligation? These are the sort of liabilities that I know you must confront after the divorce head on.
Cost of living will increase for you and your spouse. If you are taking on the responsibility of being the primary conservator of your kids then you will receive child support from your spouse but you cannot always count on those payments being paid in full and on time each month. Meanwhile, your children will have expenses of their own that accrue with no regard to your receipt of child support.
Detail your assets, expenses and liabilities in a detailed fashion using a budget and inventory sheet. Your own spending habits will come into focus as well. You may find that you have become dependent upon shopping as therapy for the pain of your divorce. If you can pull back on spending you will be better off in the long run. Either way, your budget for life after the divorce needs to be known entering into settlement negotiations at the end of your divorce. Without a budget you have no basis to negotiate from and have no knowledge of what you absolutely need to get by in your post-divorce life.
More on finances and divorce in tomorrow’s blog post
If today’s blog post topic and content was of interest to you, please return to our blog tomorrow. We will discuss more topics related to finances in hopes of preparing you for your divorce and your post-divorce life.
In the meantime, if you have any questions about the material that we covered today, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week here in our office. These consultations are available six days a week and are a great opportunity for you to ask questions and receive direct feedback about your specific circumstances.