As mentioned in Part 1, divorce can be devastating on finances. Being knowledgeable about your obligations and rights can decrease the costs and lessen the anguish of divorce. Part 2 will discuss Division of Property and Financial Impact.
Division of Property
Without a prenuptial agreement, state divorce laws determine how assets will be divided. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states. Thus, marital assets acquired by both divorcing spouses during their marriage are joint property and will be equally divided. Divorce laws of other states are based on “equitable distribution”, which does not always result in equal distribution. Tangible and intangible assets will be considered by the courts in the division of assets.
Prior to meeting with a professional adviser or attorney, draft a list of marital assets, including real estate, vehicles, stocks, and other valuables, and determine their respective values. In addition, gather information regarding debt and liabilities. If applicable, determine the monthly child support necessary for customary expenses. In addition, secure documentation from your spouse’s employer that confirms salary, bonuses, vacation pay, and stock options. Do research on future income potential as well.
You should seriously consider consulting with an experienced divorce financial planner regarding an assessment of the value of your marital assets, tax consequences, and financial planning at the beginning of the process. If an amicable agreement cannot be reached, each spouse should retain their own divorce lawyer. Alternative dispute resolution methods, such as arbitration or mediation, would be less expensive and time consuming and court appearances won’t be required.
The best protection against divorce’s financial impact is prevention through a prenuptial agreement or remaining married. If neither is possible, self-education and self-protection will be necessary. The precautions below will help decrease the financial impact on you and your children.
When divorce is certain, joint bank and credit accounts must be closed, credit cards cancelled, and creditors notified. After the legal division of assets has occurred, you should revise names of ownership and beneficiaries where necessary, update your will, and check credit reports to ensure your spouse has not run up debts under your name since the separation or divorce.
Professional Guidance for Divorcing Individuals
John Faggio, CPA, CFP®, CDFA™, is a Financial Divorce Specialist. Faggio Financial helps divorcing individuals reach an equitable financial settlement in a professional, cost-effective, and expedient manner. Call (410) 884-4098 for John’s guidance today.