Divorce is a separation, a legal declaration dissolving a marriage in whole or in part, especially one that releases the marriage partners from all matrimonial obligations.
What I hope to do in this blog post, is to help you plan for an amicable financial uncoupling of family assets while maintaining civility for all parties involved.
In a marriage, the husband and wife have some overlap yet often different roles regarding the family finances. Most often we see women deferring to their husbands to take care of the family finances such as paying the bills, planning the budget and managing the family’s financial investments. While the wife is often building a career of her own, she is also the one usually taking care of the children, organizing the family activities and social life, yet she also plays a significant part in contributing to the family’s income.
In a divorce situation, everything suddenly changes, especially the financial responsibilities. Depending on whether one spouse earns more than the other and who handles the finances, as well as who will retain custody of the children, will sometimes determine how the assets and monthly obligations will be divided.
At the outset, it is important to establish a monthly family budget so that all necessary expenses can be taken care of without causing further anxiety to the family members involved.
When divorce is imminent and we have both individuals trying to divide assets and responsibilities equally, there are certain factors that come into play. The primary concern should be taking care of the children’s immediate as well as short/long term custodial, psychological, and educational needs.
Starting a discussion and working towards an agreement regarding the family assets, i.e., home(s), bank accounts, securities, etc., is never an easy task. Hopefully all parties will be honest and straightforward and not try to hide any family assets. This is key to moving the process ahead without adding additional legal expenses.
Here are some things to be aware of:
- Depending on the state you live in you may be subject to either community property or equitable distribution rulings.
- Assets may be distributed differently if there is a pre-nuptial agreement, or if assets were earned prior to the marriage date and if they were eventually co-mingled in the couples’ joint accounts.
- Savings and investments earned through the marriage that are in the bank or are invested in the market are considered after-tax money and may be divided differently due to tax implications.
- 401Ks and IRAs have different tax consequences so speak with your CPA about these tax-deferred accounts.
- If you’re signing a tax return with your soon to be “ex”, which attests to specific financial information and carries a legal liability, be sure you understand what it is you’re signing and the implications involved. If not, ask for professional help before signing.
- If there is a family- or couple-owned business, be sure that you both have access to all legal and business documents, bank accounts, and partnership agreements
- If there are children from the marriage, there should be insurance policies on both the husband and wife to cover any alimony, child support, or future education and special care needs of the children, should something happen to either parent. Be sure that any policies you both have remain in force and you can be notified if:
- the beneficiary is changed
- the premiums have not been paid or
- coverage is lapsing
- Each spouse must establish their own credit by opening their own bank account and applying for their own credit cards. Regarding personal jewelry and family heirlooms, have those items secure in a safe deposit box rather than in a drawer or in another hiding place within the home so that you can be sure these things remain in your care.
An important family asset is the primary home as well as any other real estate or properties you both own together. If there are young children less than 18 years of age, the ideal situation is for the custodial parent to remain in the family home so that youngsters can continue their education in the same school district.
Of course, this leads to the question of whether or not you and your soon-to-be ex-spouse can you afford the mortgage, taxes, and maintenance on the property, or have the money for a 50% buyout to achieve ownership of this significant family asset. Or will you and your spouse have to put the primary family home up for sale and each move elsewhere?
Agree not to act out of anger or get the police involved. Sometimes in the moment of anger or frustration a spouse will call the police and file a temporary restraining order in order to get the other spouse out of the home. This has a very negative impact on yourself & your children which will affect the family dynamic...forever.
Divorce should never be taken lightly. Be clear that when separating and filing for divorce there’s going to be the need for compromise and no one is going be completely happy or “win” in the final outcome. Most importantly, make sure that you and your spouse can continue with your lives in an emotionally healthy way and move past the difficult time you have been through.
Your financial advisor can help you put together financial models showing income earned, what your assets are now as well as the short and long-term future of your investments and how to plan a fair and equitable division of assets. If you have any questions regarding your impending divorce or if you are considering filing for divorce, I am well-versed in working with separated and divorced clients. I would be happy to have a conversation with you so that perhaps we can take what is an emotionally difficult time and overcome the difficult financial challenges together.