Prepare Financially For A Divorce
At best, divorce is a time of distraction in one’s life, when emotional and family concerns take center stage and financial issues often take a back seat. By gaining insight regarding finances, you learn how to protect your assets and can continue living a reasonably comfortable life even after divorce.
The following information will make you aware of some issues that accompany the division of finances during a divorce. It is not intended as a complete guide or as a substitute for legal or financial advice.
Preparing For Financial Separation
Often, one person in a marriage has taken primary responsibility for financial management and record keeping. If you are not well informed, realize that you are helping yourself if you put some work into this stage. Gathering the financial information keeps your legal bills down and educates you about your family’s finances. This knowledge provides you with a more realistic view of your financial situation as decisions are made. The financial
facts checklist below will help you gather the information you need.
Even if your divorce is friendly, don’t count on goodwill to determine what you should do about joint accounts. Be aware that either person can remove all the money from a joint account or charge up a credit card.
Look at your situation objectively. Apply your own common sense. You should be moving toward eliminating the financial ties to the person you are divorcing. The ultimate goal is to create two financially separate households from one. It may not be possible to cut all connections, but your risks can be reduced. Seek the advice of an attorney, an accountant or a financial professional to clarify tax consequences and other financial issues.
There are three major concerns as you begin to try to divide your property in a divorce:
- What’s mine, yours and ours?
- How much is our property worth?
- How are we going to divide the property?
To determine what your assets are, you and your spouse should put together an overall inventory of your property. The next step is to determine who owns what. An important categorization when determining ownership is separate vs. marital property.
- Items brought into the marriage
- Items inherited during the marriage
- Items received as gifts during the marriage
- Everything (besides personal gifts and inheritance) acquired during the marriage, no matter whose name it is in
- In some states: any increase in the value of separate property is considered marital property
As you negotiate the division of property, think about your needs, the needs of your children and the income tax consequences of your decisions. Things that were of great value to you in the marriage may be of little use to you after the divorce.
One warning is to avoid written agreements regarding property prior to speaking with your attorney. Documentation of any sort is often considered valid by the courts and may stand in the way of equitable distribution of property.
Dealing With Debt
In a divorce, debt should be treated like property. If you do not pay off all your debts before the divorce process begins, then you will have to determine who is responsible for each debt, similar to how your property was distributed:
- Individual debt: may be considered separate property
- Joint debt: considered marital property
- Debts involving an asset: may be considered to be the responsibility of the owner of the asset (such as a car loan or mortgage)
- Debts concerning children: in general, these debts are split equally between the spouses
It is important to confirm what is actually individual vs. joint debt. Just because your name does not appear on a credit card, for example, does not mean you are not responsible for the account. The best strategy may be to order a credit report to determine who “owns” which debts.
You should attempt to remove your name from those debts that your spouse will keep. Write to companies and inform them of your impending divorce and ask them to close joint accounts or remove your name from an account. Request the amount of any outstanding balance, and indicate that you refuse to be responsible for any charges made after the date of your letter. Request a response from the creditor and keep a copy of your letter for your files. You can request that credit card accounts be made inactive while the balance is being repaid. This prevents further charges from being made on the account.
Resources For Further Information
To find out the fair market value of your home, visit Federal Housing Finance Agency at: www.fhfa.gov
To find out the value of your automobiles, refer to the Kelley Blue Book at your library or visit: www.kbb.com
For credit reports, contact these agencies:
Annual Credit Report: (877) 322-8228 or www.annualcreditreport.com
Equifax: (800) 685-1111 or www.equifax.com
Experian:(800) 397-3742 or www.experian.com
TransUnion: (800) 888-4213 or www.transunion.com
The American Bar Association offers tables summarizing state laws on their Web site at: www.abanet.org/family/familylaw
The financial separation that comes with the divorce process can be made less difficult if your find out what your options are and remain
aware of you financial situation. Understand that this process will take time, but the payoff is a brighter financial future.
At Lenox Advisors, we have the background and experience to guide you and your family past potential pitfalls while identifying unique
opportunities. No matter what financial instrument we recommend, it will be part of a larger financial plan — one that you lead, based on
your goals and your situation.
The Lenox Personal CFOTM can streamline that planning process. It provides a single access point through which all your financial matters
can be efficiently managed, and all your issues addressed. We coordinate all your financial affairs, all your advisors.
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This material is not intended to replace the advice of a qualified attorney, tax adviser, or insurance agent. Before making any financial commitment regarding the issues discussed here, consult with the appropriate professional adviser. Lenox Advisors, Inc. (Lenox) is a wholly owned subsidiary of NFP Corp. (NFP), a financial services holding company, New York, NY. Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 90 Park Ave, 17th Floor, New York, NY 10016, 212.536.6000. Fee based planning services are offered through Lenox Wealth Advisors, LLC (LWA), a registered investment adviser. Services will be referred by qualified representatives of MML Investors Services, LLC (MMLIS). LWA is a subsidiary of NFP and affiliated under common control with Lenox. Lenox, LWA and NFP are not subsidiaries or affiliates of MMLIS, or its affiliated companies. CRN202204-263214