When to Start Financial Planning for Divorce

by Richard J. Coffee, II, Litigation Manager Illinois Offices, Cordell & Cordell, P.C.

“‘In this world nothing can be said to be certain, except death and taxes.”  Benjamin Franklin, 1789, The Works of Benjamin Franklin.  With the current divorce rates reported by various sources to be anywhere from 40 to 60 per cent of first marriages ending in divorce, perhaps an addendum this adage should warn of the almost certainty of divorce.  As with death and taxes, advanced planning for the possibility of divorce is well advised.

The considerations in marital estate planning are similar to the issues in anticipating the impact of taxes or probate.  The assets and debts should be carefully structured to preserve as much of the assets and to avoid as much of the debts as fiscally and legally possible.  The laws of the state of residence and/or of the state in which property is located may dictate the specific options and procedures available for planning the potential division of marital assets and debts.


The first consideration in marital estate planning is the pre-marital agreement, also referred to as an ante-nuptial agreement or “pre-nup.”  The laws of the applicable state or states will address what may be covered and what is required to create a binding pre-nup.   The requirements for a pre-nup include full disclosure of all assets and debts by both parties as well as adequate time for both parties to consider the agreement and obtain advice of counsel well in advance of the marriage.  A detailed inventory of the covered assets and debts will be required for the agreement.  The agreement also may cover spousal support in the event of separation or divorce subject to applicable law.  

Many men don’t consider their pre-marital assets or the pre-marital debts of the wife-to-be sufficient to warrant the time, expense, and potential conflicts of proposing a pre-nup.  However, the pre-nup may be able to shelter future increases in the pre-marital assets and debts, such as the pre-marital investments, retirement accounts, business interests, student loans, or business loans.  The applicable pre-marital agreement laws may also allow for addressing assets and debts acquired after the marriage.

When considering a pre-marital agreement, keep in mind that making the agreement is just the first step.  The parties must abide by the agreement throughout the marriage, such as maintaining detailed records of assets and debts and not commingling assets.  Failure to follow the pre-nup, even for good and valid reasons, may negate the entire agreement.

Another consideration in marital estate planning is the gifting, or not gifting, of property.  The marital status of property transferred as gifts, as with all property, is subject to the applicable laws.  If gifts to, or between, spouses are considered non-marital, the gift will need to be properly documented.  While gifts between spouses may be easily documented, gifts from family and friends aren’t always carefully documented.   Gifts of vehicles, real estate, or cash should be fully documented as being gifts in the transfer documents such as titles, checks, or certificates of deposit.   Gifts of other types of property may be more difficult to document.  When documenting gifts, legal advice as to the documentation, as well as tax advice as to any need to file a gift tax return, is critical.  The failure to file any necessary gift tax return or report could be used to undermine the validity of the gift documentation.

In addition to the documentation of intentional gifts, parties need to avoid the unintentional creation of a gift by transfers or asset/debt restructuring.  The most common unintentional gift is placing the spouse on titles to real estate, vehicles, or bank accounts as a means of estate planning or as part of debt financing.  When refinancing property that is the name of just one spouse, many lenders will seek to have both spouses placed on the deed or title to perfect the lender’s ability to foreclose upon or seize the property in the event of default.  In many states, the spouse has “homestead” or other spousal rights to real estate or other property owned during the marriage, even if the spouse is not on the deed or title, which can prevent or complicate foreclosure or seizure of the property.  Often a waiver of homestead or other rights will suffice to protect the lender without putting the property in formal joint ownership that could create marital property.  

Bank staff may recommend creating joint accounts as a means to assure access to accounts in the event of the death or disability of one spouse.  Power of attorney or authorized agent status will allow the non-owner spouse access, but such status ends when the account owner dies.  To assure the transfer of an account to the surviving spouse, a payable upon death (POD) account may be appropriate instead.  The POD account may still be viewed as creating a type of gift giving the spouse marital rights to the account under the laws applicable to your divorce.  Alterantively, your state may allow a form of trust to properly insulate the financial assets from becoming marital property.   

An ongoing consideration in handling the marital finances is that in the divorce, the property and debts may be subject to “equitable” division in your jurisdiction.  Under equitable division the party with the lesser earning capacity (usually the wife) may get more of the assets and less of the debts on the theory that the party with the superior economic position will recover from the financial impact of the divorce faster.  The equitable division is intended to avoid future financial entanglements between the parties, such as one spouse needing additional financial assistance in the future or a party defaulting on debts that come back on the other spouse.   If there is “cash on the table” to be divided, the court may award (or the wife may seek) more of the cash assets (retirement, investments, bank accounts) and saddle the husband with more of the debt.   By maintaining as little debt as possible, perhaps by minimizing the accumulation of cash assets, there is less likelihood that the husband will get stuck with more debt and keep less cash on the table to fight over than if there is large debt to go with the large cash assets.

There are other marital estate planning techniques or options that may be available depending upon the specific circumstances and applicable law.  The short answer to the question as to when to start marital estate planning is that you should start planning as soon as the creation of a marital estate (marriage) is under consideration.


Richard Coffee is a Litigation Manager in the Belleville Illinois office of Cordell & Cordell. He is an experienced divorce attorney whose practice is devoted to domestic litigation. He is licensed in the State of Illinois and is admitted to practice law in the U.S. District Courts for Northern, Central and Southern Illinois.

Mr. Coffee has extensive domestic litigation trial experience representing clients in courts throughout Illinois on all aspects of domestic litigation, including the representation of clients who are current or retired military personnel with issues under the Soldiers and Sailors Civil Relief Act and the Uniformed Services Former Spouses’ Protection Act, clients involved in state court jurisdictional disputes due to the relocation of one or both parties from or to Illinois, and clients with government or private pension benefit valuation and division issues.



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