By Holly Hammersmith
No one really wants to plan to divorce. But if it may be on the horizon for you, a few simple steps can help you prepare for a smooth financial separation while protecting your assets. Start by examining current assets that may be affected by a divorce.
Types of Assets Impacted by Divorce Include:
- Retirement Accounts Including 401(k)s, Pensions & IRAs
- Checking & Savings Accounts
- Other Stocks, Mutual Funds & Brokerage Accounts
- Home, Rental & Vacation Properties
- Furniture, Electronics & Other Household Belongings
- Family Businesses & Practices
Evaluate Separate Property
In divorce, your assets will be looked at and determined to be marital property or separate property. Evaluating these assets prior to divorcing can help you paint a picture of financial life after separation. Examples of separate property include any property owned by one spouse prior to marriage, an inheritance received by one partner, gifts from third parties to one partner; and payment received from a personal injury lawsuit. By identifying personal property, it will give you a better idea of which assets you will likely still have following divorce.
READ MORE: Selling Your Home In Divorce:What You Need to Know
Evaluate Marital Property
In addition, look at what “big ticket” items in your marriage count as marital property. Often these assets will be divided equally between partners. Knowing the value of accounts before filing papers can help you understand how finances will play out following divorce proceedings. When it comes to these so-called “shared” assets, the court will often consider many factors in determining how they will be divided, according to a report by Forbes. These factors often include:
- Duration of the Marriage
- Standard of Living During Marriage
- Age, Physical & Emotional Health of Each Partner
- Earning Potential & Income of Each Partner
- Income or Property Brought into the Marriage by Each Partner
- Financial Situation of Each Spouse Following Divorce
- Financial Needs of Custodial Parents to Care for Children
Keep an Eye Out for Financial Fraud
While you may realize your marriage is heading for divorce, it’s an entirely different matter to intentionally hoard assets – also known as financial fraud. If you suspect your partner has committed financial fraud, a finance expert can help identify this fraud and make sure you receive fair and equal share of assets. This can be especially important for high-income couples.
“Hidden or missing assets and misrepresentation of family income are two common areas of money manipulation that, if left undiscovered, can lead to a disproportionate share of the assets going to one spouse,” according to The Huffington Post. “The more money a divorcing person has, the more places it can be squirreled away out of sight.”
Hire an Expert in the Finances of Divorce
In addition to having an attorney to help protect and fight your personal assets during divorce, having a financial expert is essential. A Certified Divorce Analyst can help determine values of assets before division – including more complicated financial accounts such as retirement accounts. Some attorneys have this credential but not all have the extra training to help with evaluating complicated financial accounts. You can find a qualified professional through the Institute for Divorce Financial Analysts.
Be Careful About How Attorney Fees are Paid
Typically the largest fee associated with divorce comes down to legal fees. Borrow money from friends or family, or use a credit card to pay attorney fees. But, don’t raid retirement accounts. Another option? Selling your engagement or wedding bands can help garner quick cash to pay for an attorney.
“If you cash out of a retirement fund like a 401(k) or IRA, you’ll owe a 10 percent early withdrawal penalty if you’re younger than 59½, plus income taxes. Then there’s the opportunity cost when you remove money that is compounding on a tax-deferred or tax-free basis,” according to a report by Bankrate.com.
Gather Records & Document Household Goods
If divorce is on the horizon for you, now is the time to begin gathering records for all jointly held accounts, properties and assets. Documentation will be vital in determining your fair share of assets, and can help prevent your partner from hiding tangible assets.
“Make a clear copy of all tax returns, loan applications, wills, trusts, financial statements, banking information, brokerage statements, loan documents, credit card statements, deeds to real property, car registrations, insurance inventories and insurance policies. Copy records that can trace and verify your separate property, such as an inheritance or family gifts,” according to Fidelity Investments.
In addition, now is the time to create an inventory of household goods and their value. From your big screen TV, to personal computers, to the dining room set. Values can be documented with receipts to show how much was paid for an item or by using an appraiser. Don’t forget about antiques and heirloom items. A professional can also appraise these items.
Look at Social Security Benefits
In addition to impacting retirement accounts, divorce can have an impact on Social Security benefits. If you are a woman over 50, you should be particularly attentive to this area when planning a divorce and determining your assets going forward. Your estimated Social Security benefits can be obtained online from the Social Security Administration. If your marriage lasted 10 years or more, and you are now 62 or older, you may be entitled to benefits from your partner, as long as you do not remarry and depending on your own income and past earnings.
Consult with an Expert
Consulting directly with a divorce lawyer and/or financial expert prior to filing for divorce can further help you identify and protect assets in a divorce. While it’s not possible to go back in time and create a prenuptial agreement now, these steps and tips can help you receive all you are entitled to following divorce.
About the author.
Holly Hammersmith is a Cleveland, Ohio-based freelance financial writer. She started her career as a reporter in the daily newspaper industry. Later she worked for Fortune 500 financial services company Lincoln Financial Group, writing and editing marketing and communications materials for over 8,000 financial advisors and assistants. She has also written a personal blog since 2010. Learn more here.