Going through a divorce in California? Some important details you need first

If you are going through a divorce and have assets or children to fight for, it seems there is no way around it; your relationship with your spouse will be adversarial.

One attorney put it best when he said the only thing you can win in a divorce is resolution. However, based on what I have seen over the past 30 years, some divorcing clients fair better than others.

If you want to minimize the tax and financial damage of your divorce, you should temporarily set aside all the negative emotions and determine objectively how complicated your divorce process should be. This will reveal your strategy and the appropriate type of professional assistance you will require.

First, ask yourself these questions:

1.      Are there significant assets to split? Assets can include your home, retirement plans, businesses, investments, and personal property (including everything from pets to frozen embryos).

2.      Was I in a long-term marriage (generally over 10 years)?

3.      Are there minor children involved?

4.      Do I expect to pay or receive spousal support?

A long-term marriage with assets, income inequality and children will require more legal and financial help. It does not matter how poorly your spouse treated you or how much you want revenge. California and 18 other states are “no-fault” divorce states, so the court will not care how they did you wrong. Do not waste time or money on legal fees if there are no assets or children to fight over. Remember, the goal is resolution with the least damage.

Next, you want to gather your financial information and keep it in a safe place, preferably not at your residence. In her WMM article on August 14th, Teri Parker covered the documents to organize in “How to Navigate Combined Finances During a Divorce.” Even if you are on the best of terms with your spouse, essential documents and files have a habit of disappearing, so you really needed to do this yesterday.

If you have assets, hire the best attorney possible, even if your spouse has control of the checking account. (Assume your spouse has already hired someone.) If you are worried about how to pay the retainer, petition the court to receive an advance on your equitable distribution portion at the beginning of a divorce to pay attorney’s fees.

Plan to interview a few attorneys to find the right one. If an attorney does not answer your questions clearly, is dismissive, seems disorganized, is too busy to return phone calls, or even if you get a bad feeling about them, move on to a second, third, or even fourth attorney. You and your family law attorney (and they should only practice family law) will be a team. Hire the best.

Next, listen to your attorney and do as they say. It is healthier to accept upfront that your relationship with your spouse will be awful while going through this process. After all, you are both fighting over your future quality of life. If you minimize interaction and allow your attorneys and accountants to argue on your behalf, your negotiations will go smoother, your legal fees will be less, and you will have a better relationship with your ex-spouse at all those future graduations and weddings.

It may come as a surprise when your trusted CPA expresses they have a conflict of interest and will no longer be able to complete your tax returns because of the divorce. Hire a new accountant and a financial adviser familiar with divorces early in the process.

You may also want to hire a forensic accountant specializing in family law to help you determine (and prove, if necessary) if some of your assets are separate property that do not need to be split with your spouse. With the help of a private investigator, they can also help find hidden assets if you believe your spouse has been dishonest.

You will want to cooperate with your spouse on taxes because, if you can coordinate filing, you will have more of the after-tax marital estate to divide. If you ignore the impact of taxes, it can cost you significant tax liabilities down the road. Here are some of the issues your tax accountants can work together on:

—Timing of when to finalize the divorce and choice of filing statuses.

—Keeping both spouses on the title to the primary residence to double the home sale exclusion.

—Splitting (instead of cashing out) retirement assets and the proper handling of a qualified plan vs. an IRA.

—Using a trust as an alternative to direct alimony payments.

—Planning who claims the children to maximize child, childcare, and educational credits.

Also, if you have less income than your spouse, use cooperation to help minimize your spouse’s tax bill as a bargaining chip.

It is OK if you do not know what a QDRO is or the details of how your spouse keeps their books. If issues arise during negotiations that you do not understand or that seem complicated, don’t just ignore them. For example, the ex-husband of one of my retired clients was receiving one-third of her teacher pension, even though she worked for 35 years, and they had only been married for 10 years.

The teacher did not understand that the QDRO (qualified domestic relations order) she signed recognized that her former spouse was entitled to receive a predefined portion of her retirement plan assets. As a result of her signing something she did not understand, she could not afford to stay in her home.

Generally, you only get one shot at this. You do not want to feel “shoulda, coulda, woulda” or what I call “divorce remorse” later, wishing you had paid more attention or fought more for what was important to you. Take the emotions out of it, pick your battles, ask as many questions as needed, and stay mentally engaged until it is finalized.

Michelle C. Herting, CPA, ABV, AEP, specializes in tax planning, trust administrations, and business valuations. She has three offices in Southern California.