Does divorce have to be painful? Avoiding financial and tax traps

Ralph
00:00:00

Imagine waking up every morning to a heart filled with anxiety. Facing another day in the midst of divorce can feel like an insurmountable mountain. The emotional turmoil, combined with the daunting financial and tax complexities, can make it seem like there's no light at the end of the tunnel. But what if I told you divorce doesn't have to be overwhelmingly painful?

What if there's a way to navigate this storm with grace and emerge with your finances and your faith intact? Well today, we're gonna get into how to avoid the financial and tax traps of the divorce. So if you're going through a divorce or you know somebody who is, this show is for you. Stick around to learn how to make divorce less painful and even more manageable.

Our listener, April, has a deeply emotional question that we're gonna address in detail. So let's get started.

Podcast Announcer
00:00:51

In a world where crushing debt keeps you trapped, where living paycheck to paycheck has become your new normal, and where the dream of retirement seems impossibly out of reach, there's hope. Join financial evangelist Ralph Estep Jr. A man who's walked through the fire of financial failure and emerged stronger on the other side.

Welcome to Ask Ralph, the show where real world experience meets biblical truth to break the bondage of financial despair.

Get ready to take control of your money, break free from the financial stress and align your resources with God's purpose for your life. This is Ask Ralph with Ralph Estep Jr.

Ralph
00:01:32

Welcome everyone to another episode with the Ask Ralph Show. I am your financial evangelist, Ralph, and I am thrilled you're here with me today. Now we've got sort of a heavy topic, but I'm gonna help you get through divorce or if you know somebody going through divorce, you can help them through this process.

So I want to thank you for taking the time to join me, and I promise that today's topic is going to have a profound impact on your financial journey. But more importantly than that, it's gonna have a profound impact on your faith. So let's get right to it. But before we get started, I just wanna remind you about yesterday's show.

Yesterday, we talked about retirement readiness and the financial habits that might be holding you back. We discussed how to evaluate your retirement plan and make those necessary adjustments before you get into retirement so you don't go in there with blinders on. So if you missed that episode, I'm gonna encourage you to check it out.
You can find all of our episodes at askralph.com. Yesterday's was just another one packed with some valuable insights that can help you prepare for a comfortable and what I called a golden retirement.

Well, let's get right to today's question. This one comes to us from April, and it's a topic close to many of our hearts. It's that topic about divorce and it's always filled with pain and confusion. I'm gonna share my story with you in just a few minutes, but April wrote this letter, so lemme get right to it.

And she said this, she said, "Ralph, I'm going through a divorce and it's been an emotional rollercoaster. My husband and I have been together for 15 years, and we have two beautiful children. The thought of splitting our family apart is heart wrenching. On top of the emotional pain, I am terrified about the financial implications.

We have a mortgage, car loans and credit card debts. I'm worried about how we're gonna divide our assets and debts, and I'm scared of the tax traps that might come with it. I feel like I'm drowning in uncertainty. How can I navigate this process without losing everything I've worked so hard for? I need concrete steps to make this less painful for me and for my family."

Well April, let me start by saying I am very sorry that you're going through a divorce, but I wanna, I want to thank you for your courage in sharing your story. Divorce is one of life's most stressful events. And it's understandable that you're feeling overwhelmed, April, you are not alone in this.

The emotional turmoil combined with that financial and tax complexities can make it seem impossible to see that light at the end of the tunnel. But April, hear me on this. I want you to know you're not alone. I've seen many clients who go through this. I've been through it myself and with careful planning and a focus on those Christian principles, and that's one of the things I'm really gonna hammer home today, you can navigate this process with grace, and that's the whole goal. I wanna tell you how you can navigate this process with grace. I'm gonna give you some tips, both emotional, spiritual, and most importantly, business and tax related. Because April, I've been in your shoes. I've seen clients lose their sense of financial security.

I've seen them struggle to find their footing again, but I've also seen stories when they emerge stronger, they emerge wiser and even more resilient. So today I'm gonna give you some concrete steps to make this journey less painful and more manageable. And listen, if you don't hear anything else, I'm fixing to save April, there is hope and you will get through this

And remember, if you've got a question just like April's, maybe it's not about divorce, maybe it's about some other financial or faith topic, you can submit it by going to justaskralph.com. Because here's the truth. I love answering your questions. It's the central part of the show. My goal is to provide you with some answers you need to find that financial peace of mind.

Well April, let's get to our Bible verse today because I really want that to guide our discussion. And this Bible verse is kind of harsh, but it's one of the ones that really touches directly on the topic of divorce, and it comes from Malachi. We don't use that book very often in the show, but this verse was perfect for today, and it comes from Malachi chapter 2, verse 16, and it says this. "For the Lord, the God of Israel, says that He hates divorce, for it covers one's garments with violence. Therefore, take heed to your spirit that you do not deal treacherously." Now I've read that and I'm thinking, it's one I hadn't really seen in the Bible too much, and I thought, wow, that is harsh. But it does remind us of something and it reminds us that while divorce is not God's ideal, he definitely doesn't want to see divorce.

It does acknowledge its reality. And it encourages us to handle this divorce process with integrity and wisdom. Because see, we are Christians and as Christians we're called to act with honesty and transparency even in midst of this terrible emotional and financial turmoil. We gotta seek reconciliation where possible, and we've gotta prioritize the wellbeing of all the people involved.

Unfortunately, a lot of times in divorce, it becomes a battle. And this verse sets the tone for our discussion today. I just really wanted to focus on that because I wanna remind everybody to approach divorce with a spirit of grace and a spirit of understanding.

Well, today I'm gonna start with a little gratitude. I am grateful for the opportunity to help people like April navigate the complexities of divorce. And I'm thankful for the experiences and the understanding that the Lord has given me to assist others in overcoming these financial challenges from a place of faith.

That is really what we talk about on the show here. So it is a privilege to use that knowledge and use that expertise I've garnered over the past 30 years doing this to make a difference in people's lives.


I thought today I'd start by sharing my story divorce. Now this is not gonna be what you were expecting because mine started when I was about eight years old and I can still remember. Let me paint a picture for you. I remember it was a cool summer morning, and I remember my dad came to my sister and I, I think we were watching like the Sunday morning shows or whatever, and he said to me, he said, listen, your mom and I need to have a discussion and we're gonna be a little bit, so don't interrupt us. Don't bother us. Now we're, I think at the time I'm maybe, maybe eight. So I think my sister's about four. And so my mom and dad, they head out onto the back porch. We had a split level house and on the back we had like a concrete pad and had a nice little porch overhang.

And like I said, I think I was about eight, my sister was about four. So mom and dad head out, and of course we're two nosy little kids. We're thinking, what's going on out there? You know, mom and dad are out there talking about sort of an unusual circumstance. You know, dad made it very, I say formal for lack of a better way of saying it.

And listen, I'm eight years old. I don't remember a lot of this, but I remember this stuck in me for so long. So my sister and I were sitting there in the rec room, which was right off the porch, and we're listening and we're trying to hear what's going on out there. And then my sister and I start thinking, well, must be something fantastic.

We started thinking, well, maybe mom and dad are planning for another summer road trip. That's something we used to do when we were kids. We would take road trips all over the country. My dad was selling insurance at the time, and he would travel for this seminar and he would travel for this seminar and my mom and I would tow along and my sister, we tow along.

It was always a big journey. I remember going to Aspen, Colorado. I remember going to Des Moines, Iowa. So for an east coast kid, like this was our big trip. So my sister and I were thinking, oh, well maybe this one's gonna be to Walt Disney World or some other exotic location. And then we thought, well, you know what?

Maybe it could be they're in the backyard. Ah, we figured it out. They might be discussing, putting in a swimming pool. We'd be able to enjoy that for years to come. And I remember we were sitting there creating this vision in my head of this huge olympic sized swimming pool with a water slide and with a tall diving board.

And I pictured those pool parties with all my friends and those July 4th barbecues with all the food, you know, all everyone could eat, all topped up with some fireworks at dusk. And then I thought, you know what? No, I bet you, I bet you it's that road trip. I bet you it's that road trip, that Disney Day we're planning.

So I pictured, my sister and I, we were gonna be standing in front of the magic, the castle at the Magic Kingdom with the Disney characters, eating some, eating them cotton candy, you know, and enjoying all the rides. And I'd only seen these on tv. Well, the reality was a lot different than that. And I guess the first inkling of that things were, were not okay was when I could faintly hear my mom sobbing. And see, I knew that sound, and it was, at that moment I started to feel something was really wrong.

I started to feel like, wait a minute, something is not right here. And I think about it now. It seemed like it was just sitting there for hours and hours and just wondering what's going on. And by this time, my sister and I, we were perfectly quiet and I'm just hoping I had heard something wrong.

Maybe it was a cry of excitement. You know, we were playing in this swimming pool or we were going on this trip, and by this time my sister and I had moved closer to that back door. We had one of those screen doors and we're trying to listen. And all of a sudden, I heard it. I heard my dad say, well, Lynn, Lynn was my mom's name.

We better tell the kids. And it was at that moment, I realized that the next few words I was gonna hear was gonna determine how this whole day was going to go. And I didn't think about it at the time. But for that matter, those next few words were gonna determine how the next few days were gonna play out.

And at the time I never imagined that little meeting on the porch with my mom and dad would affect my entire life. So it seemed like for ages and finally my dad comes in and my mom was right behind him and I looked at my mom and her eyes were just blood red, and it was so obvious she'd been crying, and I guess it's the natural tendency for boys to, I ran over to my mom and put my arms around her, and I held her tight.

And then my dad started the delivery of what turned into the speech that I'll never forget. I'll never forget the speech the rest of my days. He said to my sister and I, he says, oh kids, we got something to tell you. Your mom and I are getting a divorce. And see, I knew kind of what that meant because my friends up the road had been going through this as well.
In fact, it seemed like that summer divorce was like the new illness that was sweeping through many of my friends' families. And I didn't want to hear it. Those are words I never wanted to hear. You know, that affects somebody else. That affects that kid up the road, that affects that kid down the street.

And then what my dad said next really changed my life forever. And I never expected it. He simply said, Ralph, you are the man of the house. And I've talked about this on the show before. Listen, at eight, I was not ready to be man of the house. And I tell this story because this was so foundational for me.

It's really defined my life. It's really made me who I am, better or worse today, but, so my goal today is to help you, April and others navigate this process in a way that you can somehow try to maintain what I'll call this new normal. I remember going through it, my mom would use a term like, our new normal is this kids, and it is crucial that you consider all the things I'm gonna share today because they're gonna be vital for your journey of divorce.

So let me start by telling you about a client I worked with just a few years back, and her name was Emily. I had the privilege of working with her. She was going through a divorce just like you, April, and then one of the most challenging times of her life. And listen, if you've been through one of these or you know somebody who's going through these can be one of the most challenging situations you'll ever go through.

Emotional, financial, all of those things. And Emily, just like my mom had been a stay-at-home mom for most of their marriage. She dedicated her life to raising her two children, and all of a sudden her husband unexpectedly said, I want a divorce, and her world was shattered just like my mom's world was shattered.

I can still remember, it seemed like it took forever for my mom had just stopped crying. And Emily felt the same way. She felt like she was losing everything she had built up over those 15 years of marriage. A lot like your situation April. And immediately she went to that thought of reentering the workforce 'cause she was gonna have to pay some bills.

And she had been out of that workforce for so long. She had worked for, you know, doing stuff around the house and that was really her focus. And she always thought, Hey, this is what my husband wants. We have a great marriage together. And then as the reality set in, Emily started to be overwhelmed by the financial implications of the divorce.

She started to think about what is gonna happen, you know, what's gonna go on with the finances, with the house. And she reached out to me, her and her husband had been clients of mine for many years, and she would call me routinely. She, and you could always, I would always tell when it was her. Her voice would always be shaking.

She'd always be worried about something. And she would tell me about the sleepless nights, that constant anxiety, and that deep rooted fear of losing everything she had worked so hard for. And I remember one day she told me this story after the fact she shared a particularly interesting moment. She was sitting at her kitchen table and I, it's funny because I can still see my mom doing the same thing.

She was surrounded by piles of paperwork. She felt like she was drowning in a sea of uncertainty. This was stuff she had never handled before. And she said at the time the kids were with her, with her father, and she said, Ralph, she said the silence in the house was deafening. It was just me at this kitchen table and all of this paperwork that I had to sort through.

It was the father's weekend for the kids. Man, I've been through that. I know what that's like. And the weight of her situation felt so unbearable. And I remember her reaching out to me later that weekend. She said, Ralph, I don't know how I'm gonna get through this. She shared with me, she said, I feel like I'm drowning and there's no one to throw me a lifeline.

I am totally by myself. It was in that, what I'll call her darkest moment, that she found resilience and rather than sit there and be overwhelmed and taken aback and just wallow and all that. She decided to take action. She booked a call with me. She scheduled an appointment. She came in and sat down with me.

And her and I worked together, we created a plan to both minimize the financial impact and navigate those tax traps, and that's what I'm gonna talk about today on the show. I'm gonna talk about how to handle the finances, how to navigate the tax traps, and also talk about some interesting ways to get through the process without breaking everything in front of you.

Now for working with Emily, the first step for us was to create a realistic budget, because we had to come to that realization that her life was like my mom called the new normal. Her financial situation was different. So we sat down together, we went through her income sources. She had at this time had gotten a job.

We went through all of her expenses from grocery bills to utility bills and everything in between, just like I do with everybody that I work with. And listen, it was a detailed, and sometimes it was emotional. There were times when we'd work together, she would just break down and cry because she would say, Ralph, I never expected I have to handle all this stuff.

But she needed to understand it. If you're listening to this April, if you're listening to this, anybody else is listening to this, you got to start with understanding what you have and where your money's going. So we started to make some progress on the emotional front, but Emily was still struggling emotionally.

I say oftentimes in my practice, I wear many hats. One's the tax hat, and I've got the financial hat. I've got the counselor hat, I got the emotional hat, but I, this was really over my skis. I wasn't really sure how to help her. She would always tell me, she said, I feel isolated. I feel alone. Now she had the support of her family and friends.

She would tell me about her girl friends who would come over and help her out and get her through these weekends that were tough when her kids were away. But then she started to have those fears about how was this divorce gonna affect her children, and how could she explain the changes that were gonna happen to them.

So again, I was over my skis on this one. I said, Emily, listen, I think you really need to get support. One of the best ways you can do that is going through your faith community. And I encourage her to reach out to her church, reach out to other organizations that help people through this, and Emily joined a support group where she could talk to other people going through the same situations.

I remember my mom did the exact same thing, and it was a lifesaver. The other thing that Emily did, and I'm gonna encourage you, if you're listening to this and you're going through this, or you know somebody's going through this, encourage them to do this. Emily started seeing a therapist because she needed to process her emotions and bigger than that, she needed to develop some coping mechanisms.

And one of the biggest challenges Emily faced was dealing with this emotional rollercoaster of the divorce process. I remember her saying it to me one day. She said, Ralph, it's like, I'm on this rollercoaster, going up and down and up and down and sideways and upside down. There were days when she said, Ralph, I feel like this is great.

I am, I've got this figured out. I am on this. She felt hopeful, optimistic. Then other days she felt like just throwing in the towel, giving up. But lemme just tell you, Emily's a strong lady. She never lost sight of her goal and her goal was to create a positive future for herself and for her children.

See, that was the destination she put out in front of her. So we continue to work together. We continue to work through this divorce process, and Emily faced several obstacles. One of the biggest obstacles, and this is one of the big ones, was how are they gonna divide those assets? And unfortunately, I have to say this, and I'm not bad mouthing her husband, but he was not always cooperative.

And there were times when, I'm gonna tell you right now, she would share with me, she goes, Ralph, he won't even listen to me. He won't be reasonable. There were times where there was this huge impasse and they were just butting heads. So one of the things I worked with them to do is what's called mediation, and I'll talk a little bit about that later in the show because I felt like that might be a less adversarial and a more cost effective alternative to traditional litigation.

Because listen to me, you hear me on this one. The only people that make financial benefits in a divorce are the divorce attorneys, and I'm not sitting here badmouthing them, but that is the truth. They love it. The more you fight, the more they bill. So when I mentioned this to Emily, she was kind of skeptical.

She said, you know what, okay Ralph, but I'm at my wits end, so let's give it a try. So they went and they decided on the mediator. And the great news about this was the mediator was able to facilitate some negotiations and they helped them reach a fair settlement without having to drag this attorney in and drag this attorney in and go through the battles in court.

Now, I'm not gonna tell you that it happened overnight. It was a slow and sometimes frustrating process. But Emily kept that destination in mind. She remained committed to finding a resolution that worked for her and her husband because she realized something that a lot of divorced people need to come to this realization of you're going to have a relationship with your ex.

You're going to, if you have children, if you don't have children, maybe not, but you are. Listen to this day. Now, my mother's passed away, but just recently before my mother passed away, my mom and dad still had communication because there were children involved. So she set her sight on that. The negotiation, the mediation, help with that. Now another obstacle Emily faced was understanding the tax implication of divorce. I'm gonna talk about those today cause with that division of assets, she was worried how that was gonna affect her taxes. You know, she'd always filed a joint tax return and she wasn't sure how she was gonna handle those financial responsibilities of being a single parent.

So as her tax advisor, I worked with her to ensure that she was making the best, making those informed decisions and minimizing those tax liabilities. And I'll never forget, there was a turning point at one point. I don't remember exactly how far into we were. It could have been six months, nine months could have been a year.

But I remember it was just about the time that everything had been settled out. And I remember her calling me one day, and usually her calls were sort of, I don't wanna say this in a negative way, but they were kind of negative. They were kind of, oh, here's Emily again. But this day was different because she realized that she had strength that she never thought she had.

She even said that to me and she said, Ralph, I've been through so much, but I'm not giving up. And she faced her fear. She sought help when she needed it, and she remained committed. She remained committed to that destination, that positive future for herself and her children. That was so important to her, and as time progressed, she started to get to that point where she saw the light at the end of the tunnel.

Like I said, she found a job. She found a new place to live because they had to sell the house. It was something she couldn't frankly afford, and she started to rebuild her life. She even found hobbies, she found new interest. And listen to me, you gotta do that. You got to find things to occupy your time.

You gotta find things that interest you. You gotta find things that bring joy and fulfillment to your life. And everybody's situation is different. And let me just tell you, watching this from the outside, from where we started, those frantic calls of stress and that feeling like overwhelmed and fear.

Her transformation was remarkable. Like I'm telling you right now, from a place of despair, not knowing what the next day was gonna look like, and trust me, I get this, I saw my mom go through the same thing, but in the end, Emily emerged stronger. She was more resilient, and she had this renewed sense of purpose because she said, I'm going to make this dynamic change for me and my children.

And she no longer felt like that person that was drowning in a sea of uncertainty. She was a strong woman who had faced her challenges head on and come out the other side. So April, everyone listening to this, you can do this too, because Emily's story is a testament to the power of resilience. It's a testament to the power of faith, and it's a testament to community because she surrounded herself with this community, this faith community.
For her, it was so important. There was a group at her church of divorcees or people going through the divorce process. But the bigger picture, and this is what I want you to hear, it's a reminder that even in the darkest times, even when you're facing that fear of not knowing what's coming next, there is hope.

And if you find that right support and you find that right guidance, you too can navigate the challenges of divorce and emerge stronger and more resilient than ever before.

So April, now's the time to take action. I'm gonna share some action items with you. Just like Emily, April, you can overcome the challenges of divorce.
So here are some concrete steps that you can take to minimize the financial pain and navigate the financial and tax traps. First thing you need to do, and I mentioned this when I did this with Emily. You got to create a budget. Yes, Ralph's talking about budgets again, but this is where it needs to start.

Develop a realistic budget that reflects your, like my mom called that new normal. It reflects your situation, it reflects your obligations. You need this as a starting point so that you can stay on track and make informed decisions because you need to know where your money's going. You need to know how you're going to navigate that.

You have to be intentional about it. The second thing, April, this is crucial. You got to get professional advice. Consult with a financial advisor. Consult with an accountant like me. You can book a call with me. I'll talk about how to do that later in this show because they can help you navigate these financial complexities because these are not simple things, and I'm not even gonna get to the detail of what we're gonna go through because I couldn't even handle that in the show.

But you need somebody to help you, guide you on that boat, on that mission, on that journey, because you need to make informed decisions. One of the things I learned with Emily and my mom and dad didn't go through this. They were, theirs was pretty amenable actually. It was kind of an interesting situation looking back, but I was eight, so I didn't really know all the nuances of it.

But one of the things that we did with Emily, and I think you really need to consider this, and I'll talk a bit, a little bit about this in a minute, but consider mediation. That mediation, it breaks down that adversarial, that situation, it's more cost effective. You're not paying for traditional litigation.

And it really, and listen to me, hear me on this. If you and your spouse, your ex-spouse to be, can reach a mutually agreeable settlement, trust me on this one, that's what you wanna do. You don't wanna battle. It's not worth the fight. It's not worth, because the only people that make money in that are the attorneys and the court system.

Another thing I'm gonna encourage you to do is maintain transparency. And this isn't easy if you've got a spouse that, like Emily's spouse wasn't cooperative at times, but you need to take and own your Christian faith. You need to wear that armor. You gotta be honest and transparent with your spouse about your finances.

That goes for both parties. If you are, it can avoid those complications and legal disputes. Listen, I've handled what I call forensic accounting for these type of situations where I'm hired by somebody to go in and figure out what this person has. Those are not good situations. I honestly don't like doing them, but somebody's paying me to do it and I'm trying to help them.

But it could have all been avoided if you had just been transparent and listen, 9 times out of 10 that that game plan doesn't help anyway. Next thing, another very crucial thing you need to do is build that emergency fund. You're like, oh, Ralph, here he goes. He got talking about budgets, he talked about emergency funds.

But yes, you need to have this. You gotta be prepared for the unexpected because you're gonna have expenses during divorce that you're not gonna expect things are going to happen. Maybe you're the sole person at the house now, and you've gotta handle all the repairs. You've gotta handle all the maintenance of that.

I know my mom went through that situation. Because you're gonna need this financial safety net. You don't wanna add onto that strife and that struggle and that emotion more financial woe. You wanna reduce the stress and having that emergency fund can reduce that stress. Now, here's what a lot of people don't think about.

This is like a real practical situation, health insurance 'cause maybe you don't have health insurance after divorce. You know, maybe you were on your husband or wife's plan and then you're not married anymore. You gotta look at things like COBRA, you may need to look at the Affordable Care Act, the health insurance marketplace.

A lot of people don't think about that, but that, first of all, you gotta be prepared for that. Second of all, it's not cheap. COBRA insurance is expensive. The marketplace may very well be expensive. Another thing you gotta think about is maybe you gotta sell some assets. You need to cut down, like Emily did.

They had to sell the house. She had to downsize, she had to go to something she could afford. But again, this is where you want to talk to a financial professional to make sure you're not making a huge tax mistake. It could lead to tax costs, it could lead to penalties and lead to interest. Now, here's a pro tip.

I'm gonna tell you this one, you gotta listen to me on this one. I have dealt with this so many times with clients and it's not funny, it's avoid lavish spending. One of the things I see people do when they break up is they want to try to compete with each other. And they go through this process.

They bought this and they got a new car, and this one got this, and this one got that. This is not a time to be lavish in your spending. When you're going through this process, be prudent with your finances during this time. It's not a time to go spend a lot of money because this is a new reality. My mom said it best,

our new normal. Well, you might have been used to charging up that credit card every month because you had more income between the two of you, and it was no big deals. Like, we went out to eat whenever we want. We took a vacation whenever we want. I went to Amazon, bought whatever I want. Well, guess what? The reality is, now, you might not be able to do that, which leads me to another thing. You gotta understand. Maybe you're in a situation where you're getting alimony or child support. Those things have an end date. All the more reason to understand what that budget looks like. And you gotta factor that into your long-term financial planning and you gotta budget accordingly.

Which leads me to the final recommendation I have that is that start this early financial planning is crucial to minimize those negative financial consequences and protect your family's future. A lot of people live on that alimony, they live on that child support, and all of a sudden the kid turns 18.

It's like, oh, wait a minute. Where did my money go? You got to plan ahead for that. Be prepared for that inevitability.

Well, now let's talk about those common tax traps. I've alluded to these a few times. I just wanna take a few minutes and talk about some of the more common ones, because divorce can have a significant tax implication.

Here are some key ones to watch out for, and this is one that a lot of people don't think about your filing status on your tax return, but more importantly that your filing status with your employer as it relates to your payroll. Because the thing a lot of people don't realize is whatever your marital status is on the last day of the year, that's what it's considered for the whole year.

So listen, yeah, you're right. So if you get, April, think about this one. If you get divorced on the 31st of December, guess what? You're considered single for the whole year. Now, you may be able to file head of household, you may be able to do something like that, but this could significantly impact your tax because if you set your tax planning at the beginning of the year, you filled out that W-4 with your employer and you said, Hey, I'm married.
I'm gonna do this, this, and this. Well, then all of a sudden, your tax situation has changed and you don't have the time to recover. So if you're going through a divorce in the current year, plan ahead. Plan with what that filing status is gonna be at the end of the year and make those adjustments to your W-4 right away.

Another thing that leads right to that is dependency. If you've got children, there's gonna be a discussion about who's gonna claim them as a dependence, because you've gotta understand what the tax benefits of that. Maybe you only have one child, you can't split the children. It sounds like a terrible thing to say, but you can't split the children.

Well, you might have to alternate back and forth and this will impact child tax credits.
It'll impact your filing status, whether you're able to file head of household, it'll impact whether you can get education credits. All of those things are things that you've got to consider. So we're talking about the emotional stuff.

We're talking about the financial stuff, but this is where the rubber meets the road. And these tax items, a lot of people overlook. We talked about this with Emily. April, you may be going through this, is that, and as that property division, you gotta understand the tax implications of selling those assets like that family home, or maybe you got retirement accounts because that sale, that family home could trigger a capital gains tax.

Again, it depends on your situation. Reach out to somebody like me or a trusted financial advisor and understand that just like if you've got retirement accounts and your divorce decree or what you come up with, breaks those things out, there are tax implications to that. You've got to understand what those are.

Now, I'm not gonna talk about alimony, but understand alimony. A lot of that, those rules have changed since 2018. But if you're in a divorce already, you have alimony. Just understand that there's some complications to that. Another thing I wanna talk about is child support. See, child support typically ends when children reach a certain age, which could impact your budget.

It could also change your tax situation. So you've gotta understand the tax implications of child support payments. Now listen, child support is not taxable income to the person receiving it, and it's not a tax deduction for the person paying it. So let's start there, but there are bigger implications to that.

Another thing I'm not gonna really talk about a lot today is what's called a QDROs. It's what's called a Qualified Domestic Relations Order. Now this is where the court or your divorce decree can facilitate transferring assets, retirement assets, specifically. Like if you've got a 401k plan or an IRA and there's some transfer that's gonna happen to the divorce, you can do those transfers because of this QDRO without penalties and without tax liabilities.

But again, you've got to structure it correctly, which leads me to the next thing. You gotta avoid those tax issues with dividing assets. Maybe you look at some after tax rates. Do those QDROs because you don't want to have, you know, I had a client a few years back, they were going through a divorce.

Well, about six months before their divorce was finalized, they came up with this boneheaded idea. They said, oh, you know what? My husband's got a hundred thousand and I'm not picking on husbands today. It just so happens just the way this worked out, husband's got a hundred thousand dollars in his 401k, and we've come up to an agreement that we are going to split that.

So rather than go to an attorney, or rather than go to a financial planner, they decide, Hey, we'll just take a distribution and we'll just cut it in half. What they didn't realize at the time was that distribution came out and the husband's name, social security name is his account. He came in to get his taxes done, and all of a sudden he's got a hundred thousand dollars worth of income.

In addition to that, he had a 10% penalty because he wasn't 59 and a half. So you've got to understand that. You've got to understand the tax implications of that. Meet with somebody, spend some money with a professional. You also have to understand transfer assets, and maybe not, maybe it's just not your family residence.

Maybe you've got a rental property, maybe you've got a vacation home. All of those things could trigger tax consequences. So again, you gotta understand those before you get to that. Another thing you gotta understand is there might be some tax relief if you filed tax returns and maybe you owe the IRS.

There are some things that tax professionals like myself can help you get through to where maybe the IRS is coming after you. There's some innocent spouse rules. Again, I can't get into those today 'cause it would take us an hour to discuss it, but consult with a tax professional if you've got back taxes.

Now things we talked about, and one of the things that Emily really wanted to do, this is one of the things she said and something my mom and dad did the same thing. They wanted to find ways to find common ground. They didn't wanna be in this battle because the truth of the matter is divorce can be emotionally and financial drain.

Like we talked about. The only people that make money in divorce are the divorce attorneys. But there are some practical ways that you can use the fine common ground and avoid spending thousands of dollars on attorney. So here's a couple tips. First thing. Open communication. Remember what I said? Emily's husband wasn't cooperative, but be open.

Be respectful with communication. This is somebody you loved at one point. This is somebody you were married to, you may have children with. Stop the accusations. Stop the in fight. This is one of the things that drives me crazy when I meet people and they're badmouthing their ex-spouse and the kids are right there.

Come on. It, you know, stop doing that. Find mutually beneficial solutions. I got talked about mediation. I'm not gonna go down that road again, but mediation is one of the things, and this is one of the cool things I've read about this when I was preparing for the show and it's what's called collaborative divorce.

So I just wanna take a couple minutes and explain this. So this is an option. See, collaborative divorce is where both parties work with attorneys to reach a settlement without going to court. Now you gotta be careful how much you spend here, but this is an approach that focuses on cooperation and mutual respect.

It's a process where couples work together with a team of professionals. They might have an accountant, they might have a financial planner, they may have an attorney, and they come up with this agreement ahead of time. Like I said, it's a team of professionals and usually what happens is each spouse will hire their own collaborative lawyer.

The couple works with a team of professionals. This could be therapists, this could be financial advisors, child specialists, and they really lay out all the aspects of the divorce in detail so that they don't have this big aha moment of what happened here. One of the big things that does is, you know, one of the things that you do when you go into this is you sign this thing what's called a commitment of cooperation.

And I thought this was really a novel idea. So both spouses, they, the lawyers sign a participation agreement that they are going to agree to work cooperatively and respectfully to reach a settlement. Now, here's the thing, because this doesn't always work, but if the process fails, the lawyers have to withdraw and then the spouses have to hire new attorneys if they decide to go to court.

So it's like they're not gonna be able to battle with those same attorneys. And this leads to transparent communication. These are, you're working with neutral experts that are really focused on the future. They're trying to figure out a way to get to that destination. Because guess what? If you've got kids, you're gonna be co-parenting.

One of the beautiful things about this is how, so how cost effective it is. It's so much more cost effective than traditional, and it's confidential. So this is one of the things you could consider. I'm not gonna spend much more time talking about it, but that collab, collaborative divorce process, April, it can minimize the emotional and financial pain of divorce, and it helps you focus on a brighter future for yourself and your family.

And trust me, April, you're going to get to a point where that will be your goal. Now let's move to some practical steps you can take. Just a couple things I wanna talk about.

First thing I want to encourage you to do. Seek support. Lean on your faith.
Lean on your friends and family to navigate these emotional challenges. It's okay to share your feelings with others because they can help you get through this rough period. Maybe you do, like Emily did, you join a support group where you can talk to others in the same situation. Another thing I'm gonna encourage you to do is therapy.

Listen, you want do this. Maybe individual therapy. Hey, listen, I'm gonna throw something out here while I'm here. Maybe you can try to fix this marriage. I don't want to just assume that it's broken. Maybe you try to go to couples therapy, maybe you say, Hey, let's give it one more try, and if nothing else, it's going to help you gain some tools to get past a divorce and understand what that relationship is gonna look like afterwards.

I've seen couples do this who ended up getting divorced, but it helped them build a structure for moving forward. One of the other things I'm really gonna tell you to focus on is self-care. You gotta prioritize your physical and emotional wellbeing while you're going through this. Make sure you exercise.

Make sure you're eating healthy. Listen, I'm not a health expert, but do this. Find some relaxation techniques. You gotta take time to reinvest in yourself. Keep your normal routines as much as you can and focus on the future. You have to acknowledge this is gonna be a painful period. But focus on, just like Emily did, focus on that destination of what that looks like when you're past this divorce.

And I talked about this the other day, and that's forgiveness. You know, you've gotta learn to forgive. This is going to be a time when you're going to, you're going to be faced with a state of finding grace for this person that used to be your spouse. And you got to do that. You might not wanna do that.

Maybe there was adultery, maybe there was all kinds of other things that went into this. But trust me. Hear me on this. You're going to need to find a place of forgiveness. Not for that other person. Maybe they don't even deserve it, but you gotta find it for you because if you continue to carry that emotion and that stress, it's just gonna weigh you down and you're gonna work through what I call the emotional stage of divorce.

You're gonna go through that denial, just like I did as a kid. You know? At first we're like, oh, this can't be happening. No. Why is dad packing his stuff? And then you're gonna get angry. I remember being so angry with my dad at times, like, dad, how could you do this? How could you tear apart a family like this?

And then you start that bargaining process, oh, you know, dad will let me do this and dad will. And then it, there's this depression. I remember my mom suffered with that something fierce and that lasted for years. But finally I remember, and it wasn't like it was this magical moment, but you will find a place of acceptance.

Embrace this. Understand that this is the natural part. It's just like when you lose somebody, it's no different than that. This is a natural part of that grieving process, and you've gotta work through them and get that support, but have that self-awareness. Have that self-care, because in the end, if you navigate this the right way, just listen to me on this.

You will emerge stronger. You're gonna be wiser, and you're gonna be more resilient.

Now, if you wanna go deeper into today's topic, like as if I hadn't gone deep enough, be sure to check out my daily blog post. You can do that at askralphpodcast.com/blog. I go into more detail.

There's some more resources out there. It's what I use to create today's show, and I just wanted to provide that for you. Again, that's at askralphpodcast.com/blog.

Well, now let's get to our reflection questions because we certainly have a lot to reflect on today, and I just want you to use these as a time to reflect on a time to meditate and really consider what we've talked about today.

Let's start with the first one, and that's this. What steps can you take today to create a realistic budget that reflects your new financial situation? You can't put this off. You've got to face this head on, and it might be ugly. You might look at this thing and say, Ralph, how am I ever gonna do this?

But you've got to get to the point of looking at that and putting pen to paper. Maybe you've gotta make some changes. Maybe you've gotta get another job. Maybe you need to downsize. Maybe you can't live in the home that you thought you were gonna live in. But until you put that intentional spending or that budget together, you're not gonna know.
So that's the first step. Second thing, ask yourself this question. How can seeking professional advice help you navigate the financial complexities of divorce? Think on that. Think about the things you don't know about. So many of my clients don't understand the financial complexity of this. They don't understand the nuances of this.

So think about where and how you're gonna hire those professionals. And number three, and this is my little takeaway reflection question. Because I think this is really the key to getting past it, getting to that point of acceptance, getting point to that point of forgiveness and grace, and that is what role does transparency play in minimizing complications and legal disputes during the divorce process?

Think about that for a second. Be transparent. Be honest. You're not gonna help yourself if you're not. A lot of people will argue me and say, Ralph, no, this per, she doesn't deserve this and he doesn't deserve this. Guess what? At the end of the day, if you keep fighting, that's what you're gonna do. You're gonna keep fighting,.

Now, if you find value in today's show, I want to ask you to consider supporting us. Your support allows us to reach more people with this message of hope and help those who are dealing with trying to navigate these difficult financial issues.

It's real simple. To do it, you go to askralphpodcast.com/support and your support is a way to partner with me to grow the show and impact others who are facing the same issues we've discussed today. Maybe they're going through tough times. It encourages others to get through this. I'm also encourage you at the same time, to support the show by sharing it with others.

Just send them a simple email or text and say, Hey, I know you're going through a divorce. I know you were talking about having to go through a divorce, or maybe they're already past it and they just need some reassurance. Just share the show. Just send them to askralph.com because here's a little story.

Here's the truth. It's our obligation as Christians to reach out and help others.

Now, maybe after listening to this, you're feeling overwhelmed. You're like, Ralph, man, I am not ready to navigate this on my own. Well, the great news is I can help you, been through this with many clients.

I understand it. You don't have to walk this path alone. You can book a call with me. Just go to askralph.com. At the top of the screen, you'll see a button that says, book a Call with Ralph and let's work together to help you get through this, help you see that destination. At the end, I help you put together a individual plan tailored to your needs.
Again, go to askralph.com and take that first step towards building that financial peace of mind.

Well, before I end today, I just wanna share a couple pieces of mail that we got. These are some quick messages that we got that demonstrate how the show is impacting people and impacting the lives of our listeners.

This is the first one. This one came from Theresa, and it says, "Ralph, your show has been a lifesaver for me. The practical advice and the Christian perspective have given me the tools I need to navigate my divorce with grace. Thank you for being a beacon of hope during this difficult time." Well Theresa, thank you for being a listener, and I am so glad to hear that you're navigating your divorce with grace because that is the secret sauce.

We got one other letter and this one came from Bernadette and said this. She says, "Ralph, I've been listening to your show for a while now, and it's made a real difference in my life. The stories and actions you provide have helped me regain control of my finances and find peace of mind. Keep up the great work."

Well Bernadette, you're the one doing the work, so I encourage you to keep up the good work and listen, I truly wanna hear from you. Your letters and messages, they keep me going. They make me stay motivated. They make me think of new topics for the show. It helps me produce this daily content, which some days is not easy.

I try to think of what do people want to hear. So here's what I'm gonna ask you to do. Email me, send an email to ralph@askralph.com. Just send it right to me and say, Hey Ralph, I really appreciate what you're doing or Ralph, I don't like when you do this. Listen, I'll take it from all sides. Positive, negative.

If you got ideas for the show, send them to me, ralph@askralph.com. Now, tomorrow we're gonna be discussing equally important topic. We're gonna talk about taxes. And is it, are you ready for the IRS? If you're selling things online, we got so many people who are selling things online through Etsy, through all kinds of Shopify stores.

Maybe they're doing some things on their own, some side gigs. Well, tomorrow I'm gonna talk about how to deal with that from the IRS perspective. It's gonna be another great episode. Well, thank you for joining me today. I appreciate your time. I appreciate you supporting this show. And remember this, my passion is to help you achieve financial success.

This is the goal of the show. I wanna see you live out your dreams and I wanna see you grow in your faith and listen, if you're going through a divorce, know that you're not alone in this. There's a support people out there that are willing to support you. So reach out and find those people, maintain that grace and recognize that there is hope, there is light at the end of the tunnel.

So as I always close the show, I wanna encourage you to stay financially savvy out there and may God bless you abundantly.

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