For Better, Worse, Or Divorce Podcast

In this episode, Jake Gilbreath and Brian Walters discuss a recent CNBC Article, 7 Common Ways a Divorce Can Change Your Personal Finances, breaking down the points identified by the financial experts in the article from their perspective as Texas family law attorneys.

Walters Gilbreath, PLLC, handles family law matters throughout Texas. Schedule a consultation if you have a family law matter you want to discuss with an attorney. If there is a topic you would like to hear on our podcast, email us.

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Your hosts have earned a reputation as fierce and effective advocates inside and outside of the courtroom. Both partners are experienced trial attorneys who have been board-certified in family law by the Texas Board of Legal Specialization.

Jake Gilbreath: Thanks for tuning into For Better, Worse, or Divorce podcast, where we provide you tips and insight on how to navigate divorce and child custody situations in the state of Texas. I’m Jake Gilbreath and I’m with my partner, Brian Walters and today we’re going to be discussing a CNBC article from earlier this year titled “7 Common Ways a Divorce Can Change Your Personal Finances”. Brian and I are going to be breaking down how a divorce can change someone’s personal finances. It’s pretty obvious that it will change finances, but we’ll discuss how it can change somebody’s personal finances, like the article talks about. The article has several financial experts in it and we’re going to be doing our own take as family law attorneys and how we see this topic play out. Brian, let’s talk about monthly budgets, which I kind of always groan and say this is one of my least favorite things in a divorce because it can be tedious. And as many judges will tell us, we have the inability to create money unfortunately.

A lot of times we’re dealing with budgets in a divorce. Even if you’re on a budget in your household and you’ve got your finances squared away, typically you’re not budgeting for two households. When folks separate and go through a divorce budgets change. Let’s talk about that process, Brian. I think the article actually mentioned that the study showed that after a divorce, a woman’s household income drops by an average of 41%. Which is almost twice the income drop experienced by men and that’s after the divorce. Talk to us about how budgets play out, maybe in the divorce, but then also planning after the divorce with this drop in income that both spouses may experience. According to this article, women experience it to a greater degree than men. 

Brian Walters: I think it’s worth saying and it’s something we’ve talked about several times, but Texas is pretty unique in the way it handles this. As far as I know, Texas is the only state that doesn’t have legal separation. That means the second you separate or somebody files for divorce, your income is forever your own and your expenses are forever your own. Texas doesn’t do that. You stay married and your finances stay married until the divorce is actually granted. They’re extreme cases. Most of the time a divorce is going to be done within a year of filing, sometimes less, sometimes more, but generally, that’s the case. That’s a bit of a protection for somebody who’s the lower-wage earner, often the woman, but not always during that time period. That’s sort of the cushion because the higher-wage earner’s money is still equally owned by the lower-wage earner while the divorce is pending.

I always tell people, “Look, you’ve got the same amount of income coming in when you separate than you did the day before you separated because you have one or two incomes, but you’ve got more expenses. Now, you’ve got two households to pay for rent or mortgages. You’ve got two water bills, two electric bills instead of one.” There’s that much more. The expenses go up also if you’re fighting, especially if you’re fighting an expensive legal battle. Now you’ve got lawyers to pay on both sides, but your income stays the same for most people. It’s a net loss for both sides in the short term while the divorce is pending. Now, the difference again for other states is that even though you’ve got that legal separation most other states have alimony, what we call spousal maintenance in Texas. That’s pretty rare in Texas.

It’s a very specific set of situations. But this article pointed out that even most other states are now just doing this alimony on what’s called a rehabilitative basis. In other words, to get someone on their feet. You don’t generally anymore get to live the rest of your life getting an alimony check. The court says, “All right, you may need to go get a license or go to school or something,” but even if you’ve been married a long time, that’s not going to just continue indefinitely. That’s going to cut off here relatively quickly. It’s a big deal, especially for the lower-wage earners. It is a massive change in income and lifestyle a lot of times. That’s my general view of it.

Jake Gilbreath: On a related topic that a lot of times we don’t think about is somebody’s credit history and their credit score moving forward. It’s not just about assets that somebody has to themselves in a divorce or their income through alimony, child support, or income-producing assets. Somebody may not have the credit history that they need to be able to go purchase a house or sustain even close with the lifestyle they were. Brian, what are you telling clients about credit scores? How can a divorce affect that? What are ways that you can head off those issues? Again, this is a topic that we don’t think about a lot. Somebody’s credit rating and credit history.

Brian Walters: It’s a problem for several reasons. One is especially if you’re the non-working spouse or the lower-income spouse. Your credit scores may be either non-existent or very low, and it’s going to take a while to build that up. Secondly, it’s not unusual that people miss credit card payments, utility payments and that type of thing. Especially early in a divorce, because there’s a lot of confusion. There’s not a lot of liquid assets around. People are grasping for the little bit of money that’s out there to set up a new household, pay their lawyer, or whatever they need to do. Sometimes those credit cards don’t get paid on time, or sometimes you’re late paying your cable bill and that will affect your credit. That’s something you want to try to avoid if possible. You referenced it earlier, that courts can’t make money fall out of the sky. If you have to choose between putting food on the table or paying your credit card on time. Everybody’s going to choose to put food on the table. 

Jake Gilbreath: We’ve talked about it in other episodes, but it doesn’t matter how much income you have, liquidity can be an issue in a divorce. How many times have you seen a seven-figure estate with multiple seven-figures where cash is really, really tight? Maybe it’s all tied up in real estate, retirement or a large estate, we just don’t maintain a bunch of cash. Now we’re paying attorney’s fees, household expenses, new furniture, expert fees, credit cards or lines of credit. Sometimes that’s the only option, but it’s something you have in the back of your mind to make sure those at least the minimum payments get paid. Then also having that income-to-debt ratio squared away whenever you’re leaving the divorce. It’s just another of many factors.

I was talking to a consultant the other day about the spreadsheet and a negotiation of a property. There’s so many moving parts other than just what the numbers are on the spreadsheet and how we divide it up. Whether the assets are income-producing or not, cash is king in a divorce. Whether or not something’s liquid or illiquid, what closing costs would be if you sell something, what the tax impact is, what situation we send you up for your monthly cash flow if you need to go get a mortgage, what’s your credit score going to be? Unfortunately these are all things that can get looked over in a divorce, particularly if you have a lawyer that’s not experienced in it. It can have a huge and unexpected impact on just your day-to-day lifestyle if you’re not careful in a divorce. Also on a related topic I think the article talks about your retirement portfolio. We were talking about this in another podcast, particularly as folks get closer to their retirement age. Naturally they have in their mind, “This is what retirement looks like for me.”

If you’re approaching the time where you want to retire, you’ve probably created in your mind, “How much money I need to have saved up in my retirement portfolio. What’s my lifestyle going to look like?” Most people create that picture in their head without thinking, “Could I do this with half if all of a sudden half of it walks out the door, and could I still retire? And what’s that picture look like?” That can be very stressful and obviously have a huge impact on somebody’s lifestyle. So starting with a basic question, but then talking about how it affects a divorce, retirement savings, and community property. How does that get dealt with in the divorce?

Brian Walters: In Texas the retirement savings that occurred during the marriage or community property. If you have a bunch of it coming in then you would generally get that what you had before going on the way out to greatly simplify a complex issue. The question is, do you want retirement? If it’s a younger couple getting married and one of them has a high income and the other one has little or no income, that retirement savings is probably not that interesting of an asset to get for the young, low-income spouse. They’re going to be worried about, “Hey, I need to make ends meet in the next few years.” So they’re probably going to want assets that are liquid. Maybe the house or equity from the house or trading accounts or savings accounts, those types of things. Meanwhile, maybe the older, closer to retirement folks with high income would probably like those retirement savings as they head toward that point. 

Jake Gilbreath: Also, you have to think about if it’s pre-tax or post-tax retirement dollars and how that affects the overall division. Brian let’s lump together the last few topics that people don’t think about. One is taxes and your filing status when you go through divorce. The logistics of having two households, one salary, maintaining a household, insurance, these types of things. They’re not small ticket items, they’re big ticket items. The stuff that gets left by the wayside that we don’t think about if you don’t have the experience. 

Brian Walters: Yes, that’s true. Taxes are an issue. Obviously, not only may there be back taxes owed or there may be tax refunds coming. That’s an issue. There is a benefit, a small tax benefit to being married. There used to be a big one and there used to be none. It’s kind of a public policy that’s changed over time. You’re going to pay a little bit more of taxes as single folks from the same income as you would marry. Again, I don’t think it’s as much of a deal as it used to be. Even buying a house. If you’ve got to sell your house in a divorce because that’s the only place to get money out of, it’s going to probably be much more difficult to qualify for purchasing a house. We talked about credit score damage already, but just if you have $100,000 in income instead of $200,000 that’s applying for a mortgage, you’re going to get half the size of the mortgage. So you’re going to get half the house or fewer houses to choose from. Something along those lines.

Health insurance is less of an issue than it used to be when I started practice a long time ago. Now you can get health insurance in the marketplace, where that used to be much more difficult. There’s no way to keep you on your spouse’s health insurance once you’re divorced. That’s sort of the law. That may be an issue, it may just increase the cost of it, or maybe it’s not as good of a policy. That could be an issue and those are some of the issues. There’s certainly plenty more you could go over. That’s something that we discuss all these things in our consults with our potential clients.

Jake Gilbreath: Let’s wrap up with that. So that’s what we have for today. As always, if there’s a topic that you’d like to discuss with us or if you’d like to speak with someone from our team, you can email us at podcast@waltersgilbreath.com. You can visit us at www.waltersgilbreath.com. We always say it, but it’s true. We love any feedback that we get. We love getting questions from y’all, or suggested topics, or any type of reach out that you can have. And, of course, we love our reviews. So that’s what we’ll do for today. And thanks for listening.

For information about the topics covered in today’s episode and more, you can visit our website at waltersgilbreath.com. Thanks for tuning into today’s episode of For Better, Worse, or Divorce, where we post new episodes every first and third Wednesday. Do you have a topic you want discussed or question for our hosts? Email us at podcast@waltersgilbreath.com. Thanks for listening. Until next time.