Tips to avoid debt and divorce in recession

In these tough economic times, how do you get your finances on track and save your personal relationships?

When couples enter into a relationship, many don’t discuss finances, how to budget or have a savings plan.

Elena Jara is the education coordinator at Credit Canada, a non-profit organization that provides money and credit counselling to people who are in financial difficulty. “Many of our clients have come in to our offices and due to financial strain are considering separation or divorce.”

One of the biggest problems, says Jara, is that more often than not you are dealing with two different personalities. “It’s very important that you sit down with your partner and figure out a style of money management.”

Jara recommends that couples follow these four steps to avoid household finances — and relationship — meltdown:

Creating Goals to Avoid Debt and Divorce

Once you are in debt, not talking about it does not make the debt go away. So it is important to find a way of working together. If one person is one way and the other person is not going to budge, you must find a way to tweak the budget that fits your styles. Couples can get stuck looking at things a certain way because for a long time you think about things individually. Communicating towards financial goals that you want to reach for the family as a whole could only benefit your relationship.

Tweaking the Budget

Once you’ve decided on creating goals that work for you, now you can begin planning a budget. Couples are being told to save, but what they have to understand is that debts have to be paid off first – especially the debt with the highest interest rate. What blindsides couples is the impact that the debt has. For example, if you owe $1,300 on your credit card and the minimum payment is $35, only a couple of dollars goes towards the principle and the rest goes towards interest. Jara recommends fixed payments rather than the suggested minimum payments. It will make a huge difference.

Creating a Budget That Works for You

Once you liquidate debts, it’s time to focus on a savings plan. Couples can ask the bank to take out funds and place them in a savings account automatically. To have your own personal account is fine, but have a joint savings account as well. A personal account can be used for grooming, clothes and entertainment. The joint account should be used to pay bills, debt, household expenses and contributions to a savings account.

Consistently Working on the Budget

This is the secret to success. Just because a budget plan worked for one month does not mean you stop the plan. Couples should review their goals consistently in order to get out and stay out of debt. Big businesses always review their budgets to make sure they are in line with their expenses. So if big businesses do this, why shouldn’t the average consumer?

Anticipate Changes

Life happens. Therefore, life has to be incorporated into your budget. Couples have to anticipate changes such as job loss, or wage cuts and will have to learn how to live with less. By setting aside money for unexpected changes, it will allow you enough time to tweak your budget so that you can start reducing monthly expenses and live within your new income.

In spite of a roller coaster economy, your relationship doesn’t have to suffer wild ups and downs. By following these four steps, your relationship can weather stormy economic times.

How to Reduce the Cost of Filing for Divorce

Getting divorced is hard for anyone as it involves emotions and regularly becomes a very bitter and long-winded process. To make matters worse, the cost of filing for divorce can cost thousands. According to a BBC News report, “The average cost of ending a marriage through the British courts is about £13,000.” However, making a few changes can reduce divorce costs significantly.

Is it Possible to Reduce the Cost of Filing for Divorce?

A BBC News report on Jo Gideon covered how she reduced her divorce costs to £1,130. Divorced four times, she managed to keep the cumulative cost to below £15,000. Ms Gideon said: “I did a spreadsheet of all my indebtedness and tried to break it up into what I perceived as being joint indebtedness and my ex’s, and to look to see reasonably, going forward, who could be expected to pick up what.”

Act Swiftly to Reduce Divorce Costs

The longer legal proceedings take, the higher divorce costs will be. Marilyn Stowe, the senior partner at Stowe Family Law, stated that, “Issuing an application to court, timetables the case and can save legal costs in the long run.” Early preparation, finding essential paperwork and planning will help to save money when filing for divorce.

Avoid Filing for Divorce at the End of the Financial Year

Filing for divorce just before the end of the financial year provides little opportunity for effective tax planning. This can push-up costs as it doesn’t provide sufficient time to identify the most tax-efficient arrangements. Asset transfers don’t attract capital gains tax, provided that they take place during the year that the separation takes place.

Benefit from Collaborative Law

This process involves both parties sitting around a negotiating table in order to discuss all of the relevant issues. This forces both parties to negotiate in order to reach an amicable resolution without attending court. As fees are incurred on an hourly basis, costs can accumulate if an agreement cannot be reached relatively quickly.

Try to Avoid Mesher Orders

A Mesher order concerns the postponement of the sale of the family home until a specific event occurs, such as re-marriage. This serves to create money problems further down-the-line. It may be preferable to own a large percentage of a more modestly priced property than to own a small share of a house that will eventually need to be sold.

Avoid Accepting Low Offers Just to Minimise Divorce Costs

It is common practice for a spouse to make a low out-of-court offer to a partner because he or she realises that further legal costs may not be affordable. Whilst filing for divorce is an emotionally and financially trying time, it is rarely a good idea to accept a low offer simply to be able to move-on. Marilyn Stowe stated that: “In exceptional circumstances, the court does have power to make costs orders.”

Filing for Bankruptcy to Escape Personal Debt Obligations

A number of bitter spouses are deliberately filing for bankruptcy in order to avoid divorce costs and debt obligations. It is important to take the case to court should insolvency be a strong possibility. If the spouse does declare bankruptcy, it is still possible to stay in the family home for 12 months and to claim a share of any available equity. An arrangement can also be made to buy-out the spouse’s share.

Check Bank and Credit Card Statements

Angry and bitter partners often use joint credit commitments to make expensive luxury purchases in order to get revenge when they find out that their spouse is filing for divorce. However, the court can add back any money that has been deliberately wasted, but it is important to check bank and credit card statements in order to be aware that this has happened.

Filing for divorce is a stressful and upsetting time for anyone. There are more than just emotional matters to deal with, there are pressing financial issues as well. Be aware that a spouse may be in the process of filing for bankruptcy in order to get revenge. Check bank and credit card statements for malicious purchases. Quality, efficient planning will help to minimise divorce costs.