Although there is debate over what the exact divorce rate in the United States actually is, somewhere around 40-50% of all marriages end in divorce. The financial ramifications of ending a marriage can affect the rest of your life.
No one plans on their marriage ending in divorce, but nonetheless divorce is a reality for millions of people. The fact is, divorce is a risk every marriage faces. Admitting that possibility exists does not destine a marriage for failure.
In most cases, however, people are driven predominantly by emotion when it comes to making decisions about marriage and divorce.
“(Marriage) is something that very few people think about from a financial standpoint,” said Cordell & Cordell Co-Founder and Principal Partner Joe Cordell. “They allow themselves to be driven by emotion, by anger, by perhaps other factors that are not rational. It’s just interesting that these same people would never consider making far less important decisions in that way.”
It is much more logical to admit even before you marry that the possibility of divorce exists. That way you can take steps to ensure that your assets and finances, and those of your spouse, are protected.
Probably the single most effective way to ensure your assets are protected in the event of divorce is by signing a prenuptial agreement prior to marriage.
Although a prenup can’t cover everything (child custody issues, for example), it can generally address property rights, rights for spousal support, rights for attorney fees, retirement accounts, each party’s finances, and ownership rights regarding life insurance or disability policies.
Many people mistakenly believe agreeing to a prenup is a precursor to divorce. In reality, a couple coming together to have an adult conversation to make sure both are protected can actually strengthen a marriage by removing a lot of stress from the relationship.
Asset protection trust
It is wise to consider an asset protection trust to protect that wealth for your heirs, especially if you’ve accumulated a substantial amount of wealth. This type of trust can shield your assets from future ex-spouses as well as creditors and lawsuits.
This is also a good option if your spouse refuses to discuss a prenuptial agreement.
By placing your assets in an irrevocable trust, your assets become the trust’s property rather than your own. You’ll also likely need to choose a trustee to take charge of the trust assets should something happen to you.
There are some instances where it makes sense to liquefy your assets in order to pay off the opposing party in divorce. If market conditions are favorable, you might consider this strategy to buy out the other party’s interest in a business or retirement plan or possibly even real estate.
“Often, the party that wants to retain those items is found suddenly in a position where they didn’t plan or couldn’t plan and the only option available to the court is liquidation in order to create the money in order for one party to be paid off, and usually those are not under conditions where the assets drive the most value,” said Mr. Cordell.
Get organized and budget
Before you enter a divorce you need to gather all your personal records and papers. You’ll need up-to-date information on your financial assets and liabilities. This information will help your divorce attorney know the best strategy to utilize during your case.
Your monthly expenses are also going to change significantly. You’ll no longer be able to rely on two sources of income and could have monthly child support and alimony payments to make.
Start planning for that future by calculating your anticipated income and expenses. Coming up with a detailed budget that you can stick to before, during, and after divorce is one of the best ways for you to get your life back on track.