Parting Ways without Parting from your Assets

Getting a divorce can be one of the most daunting events in a person’s life. A marriage can end due to a myriad of reasons, but regardless of why, when a divorce happens it puts a toll on everyone emotionally, mentally, and financially.

Keeping a clear head can be tough, but making sure you come out financially secure on the other side of divorce is imperative. We walk you through some basic guidelines to manage the process and secure your financial future.     

Playing Nice

The ending of marriage itself is not all that uncommon; according to McKinley Irvin Family Law, a divorce occurs every 36 seconds and runs up a tab between $15K and $20K. However, you can still be partners and work together to ensure that the divorce agreement benefits both parties. Jason Dahl, CFP®, CLTC, CIMA®  says, “This presents an opportunity for planning even before a divorce may be in the works. For instance, we often advise clients before they take possession of any inheritance about the potential impact down the road of co-mingling the assets in the event of a divorce.”  

The basic ingredients to working through a divorce without involving expensive divorce attorneys or going to court are:

• Communicate clearly and list both of your expectations in order to come to a mutually beneficial divorce.
• Think rationally rather than emotionally. Don’t let egos get in the way of the goal.
• Work with a mediator you both trust to be unbiased.
• Do research and find out if you live in a community property or a separate property state. Knowing which category you fall in will make it easier to divide the assets, debts, and bills accumulated.

Remember the purpose of working together is to find out what everyone needs to transition successfully into his or her new life after the divorce. Having a clear idea regarding what financial terms each of you will be happy with will also reduce any animosity that may occur and set a more positive tone for life after divorce.

Make a List, Check it Twice

Once everyone’s needs are determined, make a list of all of the assets, expenses, and debts acquired during the marriage. They may include any of the following:

• Joint bank accounts
• Joint insurance
• Investments
• Retirement accounts and pensions
• The family home and vacation properties
• Businesses
• Valuable collectibles
• Recurring bills
• Tax debts, loans, etc.
• Vehicles, boats, etc.

Make sure you have all of the corresponding receipts, statements, and documents to ensure that the information is correct and up-to-date. You should also get a copy of your credit report and review it for any inconsistencies or misinformation. 

Reviewed with a fine tooth comb. Once you have both completed this part, you'll begin distributing your assets.

Divide and Conquer

There is a huge range of possibilities in terms of deciding who gets what. Maybe you decided to split everything 50/50, or maybe you want what you had before you were married. However, if there isn’t a prenuptial agreement in place, then that might be difficult to do. Knowing whether your state is a community property or a separate property state will be an important factor in determining how everything is divided, but remember, every state's law on divorce will not be the same.

A Community Property state designates any property acquired during the marriage and used by both spouses becomes the property of both. Therefore, if the income of one spouse is regularly deposited into a joint account and bills are paid using that account, then the money belongs to both spouses. During a divorce, you can’t go into the account and take out what was yours, not even if you made more or less, that money, as well as any debt, will fall under the “fair distribution” system.

Separate property states maintain that assets owned before the marriage or acquired during the marriage, but housed in an account separate from the joint account, belong only to the authorized user. So if your ex received an inheritance while you were still married, but, instead of putting it into a joint account, he or she put it into a separate account with themselves named as the sole authorized user that money belongs wholly to them.

There are times when the courts will review both community and separate property under the fair distribution umbrella, but only if a spouse has more valuable separate assets than the other spouse does. In that case, the courts may distribute more community property to them.

These are just the basic areas to consider when dividing up your assets through a divorce and of course, everyone's situation is different. What does remain consistent is that navigating a peaceful divorce ultimately takes strong communication, trust, and teamwork.