01/19/2012 12:00 pm ET | Updated Mar 20, 2012

The Finances Of Divorce

A client came into my office the other day in tears. She was just about to sign papers to purchase her new home, but was now feeling unsure of her decision. My client was in the middle of negotiating her financial agreement and wanted to prepare herself for the fresh start she desired once her divorce became final.

After a few more tears and 30 minutes of talking, she began to understand how the "emotional divorce" could impact "the legal divorce." What this means is that there are two sides of divorce to wade through -- the emotional and the legal. Divorce is upper-case Emotional, and if not managed properly, it can wreak havoc on the legal process and financial outcomes. While it would be really nice if the two elements could be handled one after the other -- you could spend a few years dealing with the emotional issues, and then, heart and head clear, go through the legal process -- but the truth is that emotions and legal processes cannot be clinically separated, and usually have to be managed at the same time.

After more discussion, the reality sunk in. There is no crystal ball as to how this will all end. Although there are guidelines as to how matrimonial assets are to be divided and spousal support is to be determined, there might some underlying issues impacting a settlement you think you should get. While you might have an idea of where you would like to see yourself financially post-divorce, this objective and the final outcome might not necessarily the same.

After significant research and speaking with financial advisors, this is how I counseled my client:

Mistakes To Avoid:

• Don't make any significant investments before your settlement is signed.
• Don't make any significant purchases while negotiating your settlement -- you might end up being responsible for that purchase, such as jewelry, vacation, clothing and so on.
• Don't make purchases based on projections; you never know how it will turn out.

The decision became clear -- wait, and have a clear-cut understanding of finances before purchasing the home. Now, once that decision was made, there was another hurdle to overcome -- her financial identity. She didn't have one. She had been the financially uninformed spouse, and didn't have a credit rating; she wanted to start building that as she was rebuilding her life.

Where she could, she began to make small changes as she prepared for her divorce settlement. These included:

• Where possible, she put bills in her name and ensured they were paid off in full and on time.
• Applying for her own credit card.
• She got involved in her finances and learned the basics -- what were the monthly expenses.
• Understood where the money was coming from and how it it applied toward her budget. In other words, what she needed to make it through the month and what might be available for mortgage or rent.
• She began to take an interest in her investments and so on so that she accurately plan with financial advisors her next steps.

It was this foresight and understanding that helped her separate the "emotional divorce" from the "legal divorce" and make prudent financial decisions -- and she was prepared to think about her dream home once her separation agreement was finalized.