Whether you acknowledge that any marriage can end in divorce, the possibility exists. I can’t tell you how many clients tell me they never saw divorce coming. Then, we find out together, they are not very well prepared for the divorce process with regard to their finances.
Think about it this way. No one wants to face the possibility that your home could burn down, or that you could get into a bad car accident, yet we all buy insurance to protect ourselves just in case.
Planning divorce finances in advance insures a couple’s future, together or not.
Readers who are happily married should consider the following advice a sort of insurance primer on “divorce finances.” These tips will put you in a more informed position if you ever find yourself in a divorce proceeding.
Openly discuss family finances with each other and agree on a budget.
Disputes about money and spending are often at the heart of many marital problems. Living within your means is a good rule of thumb for every family. Develop savings goals for major purchases and set up a budget together. Schedule time to regularly track your finances and get up to speed on where things stand.
Know the financial details of your marriage partnership.
Today’s marriages are actually partnerships in the eyes of the legal system, as well as most of society. Each spouse should have a working knowledge of their joint finances — incomes, retirement accounts, assets, debts, investments, taxes and be open to planning divorce finances in advance.
For example, carefully review your tax returns and understand what you are signing. You will be jointly responsible with your spouse for any misrepresentations. Similarly, debts incurred during the marriage are often marital debts (regardless of whether such debt is incurred by you or your spouse), so know the details of any significant debt.
Make sure you are involved in financial decisions.
Carefully review all documents your spouse asks you to sign. Do not allow yourself to be coerced when you may be signing something important. Red flags would include signing a document transferring your home or other assets from joint names to your spouse’s name alone, or to trusts for “estate planning” or asset protection purposes. For instance, never sign away your right to your spouse’s 401k or IRA or pension. Such a decision could seriously impact planning your divorce finances in advance.
Maintain business and professional network.
If one or both spouses decides to take on child rearing or other family responsibilities, both should strive to stay in touch with former colleagues, consider attending industry events or conferences, or working part-time. Know what is going on in your profession, so it won’t be like completely starting over if and when you return.
Couples considering prenuptial or postnuptial agreements must each hire a lawyer to review the document.
If you own a business or an interest in a business, are entering the marriage with substantial assets, or expect to inherit or receive gifts of significant assets from your family during the marriage, discuss these kinds of agreements with an attorney. Like insurance policies, the terms of such documents matter, so carefully read and understand yours.
Know the difference between separate and community property.
In many states, the law provides that premarital or otherwise separate property assets become marital property if they are put in the spouses’ joint names. You and your spouse may decide that you want to put everything, or just certain assets in joint names, regardless of either party’s separate property contributions to such assets. However, in doing so, you may be waiving a claim for a separate property credit and thereby making a gift to your spouse of the separate property that you contributed to such assets.
Whether you are married, engaged or single and thinking about marriage, consider this all food for thought. Knowledge of the law and some pre-planning can go a long way in preserving a partnership, and giving you both peace of mind with regard to your union.
This article is designed to provide readers with a general overview of the issues discussed and is not a substitute for legal or financial representation. For more information on divorce financial planning or divorce mediation, visit Patricia’s website, Lifetime Planning.