Losing a spouse in a divorce can be devastating. But you don’t want to lose your assets, as well.
The best way to protect your financial situation is to have a prenuptial agreement before you ever get married. That will determine what belongs to each person if the marriage ever ends (and, remember, roughly half of them do).
Admittedly, a prenuptial agreement isn’t the sexiest thing to obtain when you’re in the process of getting married. That’s probably the reason only 5% to 10% of marrying Americans get one.
If you’re breaking things off and don’t have a prenuptial agreement in place, sorting who owns what can get messy fast. Before you try to withdraw, move, or hide assets that might not belong to you (because that could come back to hurt you in court), here are smart steps to begin to preserve your assets legally:
1. Take inventory of all your assets
When you’re aware your marriage may be headed for divorce, one of your first financial moves is to take stock of all your assets. Identify what you own individually and what you believe is owned jointly with your spouse.
You can’t protect your assets until you know what they are. They could include bank accounts, real estate, retirement funds, brokerage accounts, stock options, cars, boats, antiques, businesses, and the like.
Know where all your money is. That’s the first step.
2. Make copies of your financial statements
Next, obtain physical copies of all your financial statements. Don’t rely on digital records because you might lose access to them (for example, due to a vindictive spouse who changes the account passwords).
You want to have everything in writing so you can show a judge precisely what you do and don’t (or at least may not) own.
3. Get professional help
It’s also smart to seek professional assistance, especially if you aren’t legally or financially savvy. Having an experienced divorce attorney on your side will help you retain as many assets as possible, and ensure you achieve the best possible outcome.
A trusted financial advisor can help you determine how to allocate your resources to keep them safe (and produce the greatest returns). Emotions can run high during a divorce, so a little perspective from a divorce attorney or financial advisor who is personally uninvolved (and therefore unbiased) can go a long way toward giving you a neutral perspective on things.
4. Know your state’s laws
The state you live in can have a major impact on how your assets get divided. Most states adhere to equitable distribution, which means a judge will assess the unique circumstances of each marriage to determine how to split property.
In some cases, this will be 50/50. Other times, a spouse may receive more because he or she has greater needs (such as having to pay for childcare), or less future earning potential (because that individual wasn’t the primary provider in the marriage). Though property may not always end up being split equitably, that’s the aim of most judges.
Other states (including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) are community property states. This means that any marital property is divided 50/50 after the divorce.
Marital property includes anything you acquire after your marriage and often retirement accounts as well, such as 401(k)s and IRAs (which require a QDRO to split). Anything owned prior to the marriage is regarded as separate property and may be kept in its entirety.
5. Start putting accounts in your name and setting aside money
With your state laws in mind, start creating accounts in your name only and setting aside money where you can. Now that you know your marriage is ending, you should create a financial cushion to help soften the blow of the divorce when it happens.
This could mean splitting joint bank accounts, establishing your own credit, getting your own insurance policies, and putting away some emergency cash. Whatever you do, carefully document any transfers so you won’t risk an accusation of hiding assets.
The goal is not to claim jointly held property for yourself, but to prepare your finances for when you’ll be out on your own.
6. Update your will
If you don’t already have a will, you should have a qualified and experienced attorney help you create one immediately. If you do have one, make sure to update it.
A will spells out who should inherit your assets in the event you die. Often your spouse is listed as the primary beneficiary, followed by any children. If you’re getting divorced, you might prefer to remove your spouse and leave only your children (or close relatives) as beneficiaries.
Another way to protect assets intended for your children (or inheritors) from your spouse is to create an irrevocable trust. For example, you could set up a domestic asset protection trust (APT) and deposit property in it for your children to inherit.
At this point, the assets aren’t considered marital property, so your spouse wouldn’t have access to them. Keep in mind, however, that because the trust is irrevocable, you won’t be able to reclaim the assets either.
7. Work together with your ex
Lastly, try to be as amicable as possible when splitting assets with your spouse. You undoubtedly have your differences, but that doesn’t mean you can’t cooperate in dividing property so the process can run smoothly.
If you’re lucky, you may even be able to set up a postnupital agreement with your spouse to avoid court altogether and ensure both parties get what they want.
The bottom line
Going through a divorce is not a pleasure, but by following the steps above, you can dramatically improve your post-divorce situation. Life must go on after a divorce, and you want to be assured that you’ll still be prepared to support yourself and any dependents.
So identify what you’ll need to live on comfortably and make a clear plan to claim (and protect) the appropriate assets. You won’t regret it.