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Steps to Protect Your Assets in a Divorce  Thumbnail

Steps to Protect Your Assets in a Divorce

Melissa A. Seamon, CFP®

Financial Advisor 

While most life transitions are accompanied by a high volume of emotions and stress, divorce might just take the cake. Not only are you grieving the loss of a relationship, but you must face some new financial realities, as well. You will likely lose the security of a second income, have to split shared marital assets, and may even have to move to a new home. But despite the emotional turmoil you’re experiencing, it’s important not to lose sight of the bigger picture.

Divorce is one of the top disruptors of wealth and the leading cause of asset distribution. Your number one priority should be protecting yourself, your assets, your children, and your future—and this means covering some financial bases as you face the reality of your divorce.  

Here are a # ways to protect your assets if a divorce is looming on your horizon.

1) Perform an asset inventory

Before you can proceed with any of the following steps in a meaningful way, you’ve got to identify what you have and where it is. This will mean collecting, or at least copying, as many of the following financial documents as you can. The process could be time-consuming, especially if your spouse is typically the one in control of the finances.

  • You and your spouse’s recent pay stubs.
  • One-time or quarterly income sources like rental or lease agreements on property you own, dividends, even lottery winnings since the filing of your last tax return.
  • Investment account statements
  • Retirement account statements
  • Checking and savings account statements from the past year
  • Loan documents for mortgage, vehicles, personal loans, business loans, etc.
  • List of pre-marital assets and pre-marital debts
  • List of marital assets and marital debts
  • Income tax returns; going back five years is a safe bet and make sure you include property tax returns.
  • Insurance policy information
  • Business financial statements, if you own one either jointly with your spouse or yourself. Get the facts on its net worth, assets, liabilities and cash flow. 

Having these documents readily available will not only help protect your financial stake in the divorce, but can expedite the process and reduce stress when it comes time to fill out your financial affidavit.  

2) Evaluate your cash flow and secure some liquidity

Sometimes divorces get ugly and many spiteful spouses leave their future ex-spouse without any cash. Be proactive in securing your own financial stability should things unexpectedly turn south.  

Of course, we are not condoning wiping out your joint accounts; this could fall unfavorably for you in court and will likely cause more undue stress with your spouse than is needed.  

3) Make a plan for inherited monies

If you are not careful with what you do with inherited money, you could be required to share it with your spouse upon separation or divorce. If you received an inheritance before you were married, you get credit for the balance of the inheritance on the date of your marriage. That is, the growth of the inheritance may be excluded from your marital assets.

If you received your inheritance during the marriage, you can typically exclude the value you have left from your total marital assets on the date of separation. This means you may not be responsible for sharing the total value of the remaining inheritance with your spouse.  

Although inheritors are under no obligation to share their money with a spouse or children, these lines become blurred when funds are not kept separate from the shared marital finances. Check the laws in your state and consult with an attorney to learn what to do in your personal situation.  

4) Be aware of the impact on your taxes

Tax Filing Status

Even if you are still married, your tax filing status may change during your divorce proceedings. If you have always filed joint in the past, be aware that your spouse may use the married filing separately status. This may not impact you much if you don’t share children or agree to take the same type of deduction—standard or itemized. But, spouses are oftentimes surprised to learn that their children have already been claimed and they are forced to take a standard deduction rather than itemize (or vice versa) because their spouses filed before them.  

Tax Implications of Specific Assets

You must always consider the implications of your awarded assets when working through the details of your divorce settlement. For example, some retirement account funds are contributed pre-tax and some aren’t, which will change the way taxes are assessed on liquidated withdrawals. You don’t want to receive a bunch of tax-deferred assets you’ll have to pay taxes and penalties on upon withdrawal while your spouse is awarded the tax-free assets. Come tax time, the IRS could be coming to take a significant chunk of the assets you settled upon receiving. Your financial advisor and CPA can help you decide if the types of assets being divided will remain equitable once the taxes on them are assessed.  

5) Gather a team of trusted professionals to guide you

If you’re starting to feel a bit of pressure mounting after reading through this list, you’re not alone. The realities of divorce are upending for many people. But you must not forget that the decisions you make today will have long-lasting personal and financial implications.  

Having a team of experienced professionals on your side during this major life transition can make all the difference in the type of future you walk into post-divorce.

Gardey Financial Advisors has relationships with a select group of clients, including individuals facing or going through a divorce, widows, professionals and business executives, small business owners, and those with sudden wealth via an inheritance or other means. We best serve clients looking for exceptional client service and that value a long-term partnership and have minimum of $500,000 in investable assets.  

If you are facing or going through a divorce, we encourage you to reach out to us and schedule a complimentary and confidential introductory call at 1-800-550-3880. Together we have over 175 years of combined experience helping individuals move through these difficult life transitions with confidence. Contact us to see if we can be of service to you, as well.

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