There are several ways to protect your assets during a divorce. Firstly, open accounts in your name only. If you are a non-working spouse, you must start right away to establish your credit history in case you later need a car loan or mortgage.
Even if you already have a history on file, many lawyers advise freezing or closing joint bank and credit card accounts to prevent you from being responsible for buying sprees by your soon-to-be former spouse. Furthermore, it is recommended that car insurance policies and the like should also be changed to reflect your new solo status.
Moreover, it may be tempting to take money from joint bank accounts if you are worried about your soon-to-be-former spouse draining shared resources but you may want to discuss this with a divorce attorney first. Withdrawing funds from those accounts, selling off assets, or retitling them in your name only could cause problems during the proceedings and it may even be prohibited by your state’s divorce laws. The same applies to trying to hide assets.
You may want to open a separate bank account in your name only if you do not already have one. If your attorney advises you to withdraw amounts from a joint account to fund your new individual accounts, be transparent with your spouse about your intentions. And carefully document any transfers of money from shared bank accounts.
Secondly, take an inventory of assets and debts. With your attorney’s help, request a full disclosure of all joint and individually owned financial assets so you are aware of where your money is and where it goes. It is recommended to make copies for the safekeeping of loans and credit card accounts, as well as home equity lines, past tax returns, and business debts.
Additionally, you may want to get a handle on “nonmarital assets,” things considered to belong to only one spouse, such as property brought to the marriage, inheritances, and gifts given specifically to one person.
What are Some Other Points to Consider?
Furthermore, sort out mortgage and rent payments because mortgage companies and landlords expect payments to be made regardless of your situation. You may want to move out to your place as soon as possible, even before a divorce, but that might hurt your claim to the home and you will still be responsible for at least half the mortgage payment. Sometimes the two spouses can reach an arrangement about who takes the home, but it often makes better financial sense to sell it.
Next, be ready to share retirement accounts because even if your name is on a 401(k) or IRA does not necessarily mean it is not up for grabs. These funds may be considered “marital property” and subject to negotiation. Moreover, there are nine “community property” states where everything owned together is subject to an expected 50-50 split. These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The others aim for a “fair and equitable” division.
Additionally, retirement accounts may be subject to a division as part of your divorce decree if they are considered to be marital property. If you have a 401k or IRA, for instance, the court might order that half of the money in those accounts must go to your spouse. Keep in mind that a qualified domestic relations order (QDRO) is required to enforce the division of 401k assets.
On another note, you will likely want to change the beneficiaries on retirement accounts once the divorce is finalized but you may not be able to do so without your spouse’s consent as long as you are still married. Consent may also be required if you would like to take out a 401k loan before the divorce is completed.
Lastly, changing your will because as you prepare for a divorce, or immediately upon its settlement, you may want to adjust your will accordingly. In most states, former spouses are automatically excluded from serving as trustees or estate administrators or from receiving under your will.
It is recommended to create a prenuptial agreement as one of the best ways to protect assets if you have concerns that marriage may eventually end in divorce. A prenup can specify which assets each spouse is entitled to should the marriage end and what type of spousal or child support may be provided.
However, if there is not a prenuptial agreement, there are other measures divorcing spouses may take to protect assets. I is helpful to create an inventory of assets that you own jointly and individually. In the case of bank accounts, retirement accounts, and investment accounts, it is important to know where those are held, who has access to them, and the most recent balances as mentioned earlier.
How are Assets Treated in Divorce?
The first step in protecting assets from a divorce is knowing who owns what and which property distribution rules apply in your state. Divorce courts look at what is considered to be marital property and what is considered to be separate property when deciding who receives what. Marital property is any property that you and your spouse acquired after the marriage took place.
For instance, that might include things like:
- Your primary residence;
- Vacation homes or rental properties;
- Vehicles;
- Bank accounts;
- Retirement accounts, including 401k plans and IRAs;
- Taxable investment accounts;
- Business assets;
- Pensions or annuities;
- College savings accounts established on behalf of your children; and
- Antiques or collectibles.
Separate property is the property either of you owned before the marriage. Depending on the laws in your state, the court may also recognize certain assets received after marriage as separate property. For instance, if a relative passes away and leaves $1 million to you alone the court may view that inheritance as being separate property.
How Else Can You Protect Your Assets Before and During the Marriage?
It is a good idea to create paper or digital files showing your assets and account balances just before the date of the marriage.
For instance, keep account statements for checking, savings, and retirement accounts, as well as amortization schedules and other statements for real estate and other assets. It is crucial to include titles, registrations, or bills of sale for any vehicles you own.
Most states limit the division of property to assets accumulated during the marriage, whether they follow community property standards or common law doctrine. The balance in your retirement account before the marriage, for example, remains your separate property in most cases. Conversely, the money you contribute and investment growth that takes place during the marriage usually becomes marital property.
You should also take steps to avoid commingling assets during a marriage. If you do not maintain separate property separately, it can easily become marital property in the eyes of the law. For example, avoid depositing inherited or gifted funds into a shared account or one that is used to pay common expenses so it is easy to distinguish the funds from marital income or assets. Remember to also keep separate the money generated by income-producing property you owned before the marriage.
When Do I Need to Contact a Lawyer?
If you are having difficulty deciding how to maintain and protect your assets it may be useful to contact a local divorce attorney to assist you with the process. Your attorney can provide the guidance and representation needed for your case.
