How You Can Protect Yourself Financially During Divorce
After 27 years of marriage, high-powered business and philanthropic couple Bill and Melinda Gates announced on May 3 that they are divorcing. Bill Gates, the co-founder of Microsoft, is estimated to be worth around $130 billion.1 Together, the couple is known for their philanthropic efforts primarily executed through the Bill & Melinda Gates Foundation.
While they are among some of the world’s most influential people, experiencing a divorce is a life-altering event for anyone, regardless of their net worth. If this is something that you may be working through, there are a few important things you can do to protect yourself financially during the process.
7 Tips For Protecting Your Assets Throughout a Divorce
Divorce is emotional, and financial protection may not always be top of mind. But being cautious and prepared early on can help prevent financial stress later on.
One often-overlooked opportunity to save a tremendous amount of money (and distress) is to pursue a collaborative divorce. While it’s natural for divorcing partners to focus on their differences, they can make the financial pie they’re splitting larger, and both partners can come out of the process with more, if they’re willing to work together. We encourage you to consider professionals who specialize in coming to a negotiated agreement about the terms of ending the marriage. A commitment to win at any cost often ends up costing far too much.
Regardless of how amicable (or contentious) your divorce proceedings, it can help to keep these seven tips in mind.
1: Familiarize Yourself With Your Finances
Every couple handles their finances differently: some choose to split responsibilities evenly, some involve each other in all financial decisions, and others rely on only one person to make the financial decisions.
But if you’re dealing with a divorce, you’ll want to familiarize yourself with your family’s finances, especially if you weren’t as involved with them before. Nearly every financial aspect of your life is scrutinized and addressed during a divorce, so having a good understanding of where things stand now can make a huge difference later on.
Educate yourself on all aspects of your finances, including:
Physical assets and how they’re titled (like houses, cars, and boats)
Debt (mortgages, car loans, personal loans, credit cards, student loans)
Income (your family’s total combined income)
2: Close Joint Accounts (Carefully)
If you and your spouse share a joint credit card, you’ll want to close the account as soon as possible. Neglecting to close the account could make you liable for paying any charges your spouse accrues on the card. With a divorce underway, you want to avoid accruing additional joint debt, including credit card debt. Closing a card may impact your credit score, but this may be unavoidable unless you can rely on your spouse’s agreement that both of you will stop using any joint credit accounts.
If you have a joint bank account, this may be trickier to handle. You’ll likely want to close the joint banking as well, but speak to your attorney first about any potential legal issues caused by removing money from a joint account.
3: Update Beneficiary Designations
Your spouse is likely listed as the beneficiary for various accounts, policies, and assets. If you’d like to change your beneficiary designations, you’ll need to do so for every account on which they are listed. Simply updating one account or rewriting your will won’t accomplish this: beneficiary designations take precedence over your will and each one needs to be changed.
Look for beneficiary designations on accounts like:
Retirement accounts, such as IRAs and 401(k)s
Life insurance policies
Bank accounts (checking, savings, CDs)
4: Build Your Team of Professionals
Working with professionals can be a crucial step in protecting your assets and financial wellbeing during a divorce. Most people start by hiring an attorney, but you may need additional help.
Possible professionals to speak to include:
a financial planner, who can help bring to light all financial assets between you and your spouse while working to help preserve your financial wellness during and after the divorce.
a CPA, who can help gather and sort through the financial assets and advise on the tax consequences of different divorce scenarios.
an appraiser, to assess the fair value for property like antiques, art, and collectibles.
a mediator, who can lead unbiased discussions on deeply emotional issues, like working out child custody.
5: Gather & Protect Important Paperwork
A divorce presents what feels like a million small details to consider. Set aside time to gather important paperwork. Not only will you likely need some of it throughout the proceedings, but you’ll want to keep your documents protected as well.
You may need paperwork including:
Social Security cards
Diplomas & certificates
Previous tax returns
Current tax paperwork (W-2s, bank statements, etc.)
If any paperwork applies to both you and your spouse, make sure you each have a copy.
6: Inventory Your Home
Doing an inventory of your home (with your spouse, if possible) early in the process can prevent headaches and disagreements later on. Through photos or video, document all items of value in your home and their condition. Document the date of the video or photos and any pertinent details about the items shown. This can help put both parties on the same page in regards to joint property.
Should an item of value go missing during the process, you have proof of what it was, when it was in the house or on your property, and its last known condition.
7: Reevaluate Your Budget
The reality is, divorce isn’t cheap. The average cost of divorce in the United States has been reported at around $15,000,2 but that’s just the beginning. Once the divorce is finalized, many people find they need to adjust their expectations for saving and spending, especially if they’re transitioning from living on two incomes to one. A financial planner can help you through the process of determining what your current financial needs are as well as how divorce may affect your retirement plans.
Divorce is painful, often messy, and almost always emotionally exhausting. While it will never be easy, there are things you can do to help make it easier on yourself. If this is something you are working through, reach out to a financial professional who can help keep your best interest at the forefront of the process moving forward.
Concerned about your finances? Give us a call.
This content is developed from sources believed to be providing accurate information and is provided at least in part by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Original content of Practical Financial Planning, Inc. only is copyright © 2021 by Practical Financial Planning, Inc.