4 Reasons why divorce will not bankrupt you
Many people are concerned about the financial implications of a divorce, and understandably so. Divorce necessarily requires that your family’s income has to go from supporting one household to supporting two households, so lifestyle adjustments are often inevitable.
Alabama is an equitable division state
Alabama is an equitable division state. This means that assets and debts which were accumulated during the marriage are supposed to be divided equitably by the Court. The Court is not constrained by whose name the asset or debt is in or who provided the actual financial contribution to the asset.
Even if you did not work outside the home during the marriage, you will still get a fair share of the assets because you have made contributions to the marriage through your time and effort. If your family’s assets and income substantially exceeded your debts going into your divorce, you should come out of your divorce with enough to make a fresh start.
Our Court’s Status Quo order
When you file for a divorce in Mobile County, our court almost immediately enters their standard pretrial order, which most people call their “status quo” order. This means that assets are to be preserved and not disposed of until the divorce is final.
It also means that family bills and expenses are to be paid in the same manner as they were paid prior to the divorce being filed. These provisions are designed to preserve the family’s finances for the benefit of both parties until the divorce is over.
Here are some of the relevant provisions from the pretrial order from the domestic relations court in Mobile County:
Payment of recurring expenses. It is the intent of the Court for the parties to maintain the status quo as it existed during the marriage and prior to the decision to file for divorce to the extent possible. Therefore, it is Ordered that the parties continue to pay all debts and other regular expenses, including but not limited to rent, mortgage payments, utilities, cell phone, car loans, gas, food, insurance, children’s school and/or child care expenses and other necessary living expenses in the same manner and from the same source as they were customarily paid in the months leading up to the filing of the divorce. If the Court is called on to determine what is customary, the Court will review the average expenditures in the six (6) months leading up to the filing of the Divorce and any other information that may be relevant to that determination.
Preservation of assets and access. Without prior Court authorization or the written agreement of both parties, the parties shall not:
a. sell, assign, transfer, conceal, liquidate, encumber, dissipate, destroy, damage or otherwise dispose of assets presently in their control, nor shall they direct or permit the same to occur;
b. make withdrawals from, encumber, or liquidate any account with a financial institution including but not limited to checking, savings, money market, CDs, or the like (except for the ordinary expenses necessary to maintain the status quo as Ordered in paragraph 6 above or to pay lawyer’s fees or litigation expenses herein);
c. withdraw from, borrow against, change the beneficiary designation or otherwise reduce any retirement accounts, stock purchase plans, or the like;
d. change any insurance policy (medical, life, property, etc) including making any changes to coverage, amount or term, ownership, beneficiary designation, or allows such policies to lapse;
e. terminate, allow to lapse, or otherwise adversely affect any utility service, including water, gas, electric, cable, internet, telephone or other services, or withdraw deposits therefrom;
f. terminate or limit the other spouse’s access to credit cards to which they have customarily had access prior to the divorce being filed;
g. destroy or alter any records of any kind, including electronic data files; or h. limit the other party’s access to the home (unless the parties have already agreed to separate prior to the divorce being filed), safe deposit box, financial records or storage unit(s) to which that party normally had access during the marriage.
However, this Order shall not prohibit the use of earned income to pay reasonable and necessary debts and living expenses of the parties as required under paragraph six (6) above or when necessary in the normal and reasonable course of operating a business.
Creditors cannot come after you for your spouse’s debts
A lot of people have a common misconception that, if you are married, you are legally responsible for your spouse’s debts. This is not true. If your spouse has a gambling problem or a spending problem, they take out a bunch of new credit cards and max them out, the credit card companies cannot come after you to collect debts that are in your spouse’s name.
If both of your names are on the debts, that is a different story. When you and your spouse have a joint credit card, the credit card company just wants their money, and they will collect it from either person whose name is on the card. If your spouse suddenly insists that credit card debt be transferred to your name, that is a major red flag. If you are already feeling like you cannot trust your spouse, do not agree to put any new debts in your name for their benefit.
The divorce court has wide jurisdiction to enter equitable, or fair, orders on how the family’s debts should be divided. The divorce court is not necessarily bound by whose name the debt is in, but they will look to who used the card or who benefited from the debt in making a fair decision.
Separating your finances can protect you from financial mismanagement by your spouse
One of the most common reasons we see people getting divorced is due to different attitudes about money, for example, one spouse is a saver and one is a spender. That can cause a lot of tension to build up over the years when you fundamentally disagree about money.
Often when people are married, they commingle all of their family finances. If that is the case, you have no control over how your spouse uses those funds, even if you do not agree. Money in a joint bank account is equally owned by both of the people in the account. If your spouse thinks it is a good idea to go out and buy $10,000 worth of rugs without discussing it, that can cause some major issues.
If your spouse is dealing with issues such as mental illness or addiction, that can go hand in hand with erratic spending. If you want your spouse to work and they refuse to do so, that can cause financial strain on your family. If any of these scenarios sound familiar, you may be better off financially after you are divorced because you will be in control of your own finances.
If you are already in a financial position where your debts exceed your assets and income, you may need to turn to bankruptcy to get some financial relief. There is no shame in that – bankruptcy relief exists for a reason! You should certainly contact a bankruptcy lawyer if you need advice on a potential bankruptcy. If you need advice or representation for your divorce, please contact us at Herlihy Family Law.
Author: Alison Herlihy
Family law attorney Alison Herlihy is a native of Mobile, Alabama. Alison has engaged in the private practice of family law since 2005, focusing primarily on domestic relations, divorce and child support, child custody law, adoption law, juvenile, probate practice, and wills.
Alison Baxter Herlihy earned the prestigious AV Preeminent peer review rating from Martindale-Hubbell, which recognizes attorneys for the highest levels of legal ability and professional ethical standards. Alison is a certified Guardian Ad Litem. In 2015, Alison became a Registered Mediator on the Alabama State Court Mediator Roster, in both general and domestic relations mediation.