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How to Protect Your Money in Divorce

Divorce is devastating. Not only are you broken hearted, but without careful planning you can also wind up broke. The stakes are higher still if you're in the 50+ club when you part ways. Increasingly, divorce is a reality for the grey-hair set.

“I am seeing couples divorce in their 70s. They do not have the advantage of building up their retirement. They have to live on what they already have socked away,” says Tracy Stewart, a certified public accountant who specializes in divorce.

Protecting yourself in a divorce is a priority.

Take charge

“Control the divorce process, and don't let it control you. That means building a team and being the driving force, as opposed to relying on your attorney to do it for you. You need a real game plan with goals, and a clear vision of what you will fight for and what you can live without. Your financial advisor should be a resource to validate what your attorney proposes. Don't rush to the finish line – even though it's very natural to want the process to be over quickly. Preserving your financial future requires patience and a thorough review,” says Gregory Boyle, vice president investments, Lighthouse Wealth Management.

Understand the financial impact of divorce. A good advisor will demonstrate a variety of scenarios based on budget analysis and budget versus expenses and cash flow. “We find the outcomes often surprise our clients. Things are going to change financially after a divorce. Be prepared to adapt, as well as aggressive in standing up for yourself. Think twice, and then a third time, before accepting the advice: 'This is a good deal, you should take it,'” says Boyle.

Protect assets

One of the best ways to protect yourself is with a prenuptial agreement. Most prenuptial agreements provide that all appreciation, regardless of its active or passive nature, remains separate and that minor contributions of marital property or income does not taint an otherwise separate asset, explains Caroline Krauss-Browne, the matrimonial vice practice group leader at the law firm of Blank Rome. “An artfully drawn prenuptial agreement can also protect against invasive and expensive financial discovery and appraisals.”

Be sure that the prenuptial agreement is signed by both parties and notarized. “I have seen a situation where a pre-nup was signed by both parties prior to marriage but not properly notarized. The couple divorced and the pre-nup did not hold up in court, resulting in a messy battle for assets lasting years,” says Laura Malinowski, a certified financial planner with Ballou Plum Wealth Advisors.

A pre-nup can be a lifeboat, but if you didn't do one before you said I do, what then? If there is no prenuptial agreement, it is imperative that a spouse segregates separate property and, if possible, allows someone else to manage it. “Do not discard financial documents, including tax returns and bank, brokerage and other financial statements. The burden of proving a separate property claim rests on the proponent of the claim. Courts assume that every asset owned by either party, individually or jointly, is marital unless a separate property claim is proven,” says Krauss-Browne.

Establish a separation date so that future income or assets are not deemed marital, advises Leslie Barbara, a partner and co-head of Davidoff Hutcher & Citron’s matrimonial and family law practice.

Don't however, move or change the nature of assets in anticipation of divorce, all of that may be traced in discovery and shows bad faith, says divorce attorney Lubov Stark.

Safeguard your credit

Close joint accounts so you won't be responsible for your ex-spouse's spending spree. Pull a credit report so you can see what accounts you have jointly, advises Adrian Nazari, CEO of Credit Sesame. Remove each other as authorized users on credit cards and bank accounts.

If you're in the process of getting a divorce and your ex wants to file for bankruptcy, know that you don't have to file for bankruptcy together. “Just make sure you have a clear understanding of what property/possessions will be treated as part of the bankruptcy estate,” says Nazari.

Have the person who is keeping the home refinance it in their own name. This way, if you don't keep the home, you're not on the hook if your ex doesn't pay the mortgage. The same thing goes for car loans and any other loans you have jointly.

Get the facts

Knowledge is power. When splitting taxable and tax-deferred assets, there are a lot of planning opportunities to work through. If you thing your ex-spouse is doing you a favor by giving you all the tax-deferred retirement accounts, you may be in for a surprise when you start withdrawing from these accounts and have to pay ordinary tax on the distributions. “When receiving taxable accounts, make sure you have cost basis information so you know the tax impact,” says Malinowski.

Keep in mind that for Social Security benefits, the current law allows you to collect spousal benefits if you were married at least 10 years, are not married now, and both you and your ex-spouse are age 62, points out Malinowski.

Be proactive. If you're a nonworking spouse, as you prepare for divorce, make a move to establish your own credit history in case you later need a car loan or mortgage, says AARP consumer expert Sid Kircheimer.

Figure out what your living expenses are going to be. Do not estimate, be accurate. Factor in any change in lifestyle, will you rent instead of own? Are you hoping to keep the house, but can you really afford it? If you need to get a job, can you? Assess your employment skills if you have been out of the marketplace, says Stewart.

Do learn how to take care of your own finances before you become single. It will help you understand the implications of your upcoming property settlement discussions, it will help allay some fears. “Fear is not a good place from which to negotiate, it clouds reason,” says Stewart.

Be flexible

Make the most of a tough situation. A collaborative divorce is non-confrontational, and you each are represented by attorneys who have been specially trained to not make it so. “It's the best way to go. The faster you agree, the sooner it is over, and at minimal expense. To do otherwise and pursue a confrontational approach or try to hide or divert assets, will probably cost you in the long run. Subversive actions will likely not be perceived in your favor and much will have been spent having attorneys, not to mention private investigators and forensic accounts prove things one way or the other,” says Rosemary Frank, a certified divorce financial expert. “Agree to agree and don't spend any more than necessary on professional fees for the divorce process.”

When all is said and done, be sure to update beneficiary designations on any insurance policies and retirement accounts, as well as revising your will.

Divorce is painful enough on the psyche, don't let it also be a financial fiasco.

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Anonymous   |     |   Comment #1
What about couple who live together?
Anonymous #2
Anonymous #2   |     |   Comment #2
Couples who are living together do not have the same rights as married couples when ity comes to the division of their prioperty. If there's a dispute, the courts tend to look to the respective contributions of the parties in acquiring the property. In other words, the court will usually grant the parties the property they entered the relationship with and an equitable division of the rest.
Anonymous   |     |   Comment #3
Am really nervous about marrying my fillapina girlfriend. I have assets of approx 1 million. Many years of HARD work in a factory  . Can a prenup really protect me ?
Anonymous #2
Anonymous #2   |     |   Comment #5
#3  A court will not look outside the four corners of the prenup UNLESS one of the parties presents evidence to support a claim that they were unaware of what they were signing. That means you can't just put a prenup in front of your girlfriend, get her to sign it and, without more, expect to be safe. Unless she has a sophisticated grasp of exactly what's going on, she can claim that you took advantage of her cluelessness to rip her off. The best approach would be to hire a lawyer to draft your agreement. That will usually ensure that you will avoid omitting anything important. Then suggest that your girlfriend (not you) find another lawyer to advise her about the meaning of the agreement. And pay her legal fees for that consultation if she cannot afford the cost. That sounds like a lot of hassle but it will keep her from claiming that you fooled her. I've drafted a lot of prenups and none of them were ever successfully challenged using this approach.
Wil   |     |   Comment #11
#3/9: Just in the event you were to follow #7's advice, you should think about what would happen to your partner if something happened to you. What becomes of her in the event of your death? Will you name her in your will? And even if you do, is there anybody out there who might challenge the will? Will she end up homeless, or will you make some provision for her to be able to continue living in your house? Will you buy a life insurance policy with her as the beneficiary? Also complicating matters is the fact that she is not a U.S. citizen - will she end up getting deported penniless? Can you really blame her for wanting some security if she is going to commit her future to being with you?
Inforay   |     |   Comment #13
#3, I believe that if it is money you earned before you got married and you keep it separately in your own name after you get married,  it will not become part of the assets of the marriage.  At least that is my understanding of the law in California, which is a community property state.  A prenup where you specifically describe what assets you held prior to marriage and all interest, dividends from those assets belong solely to you, should, in my opinion hold up. In community property states such as California, assets acquired before you get married and as long as you do NOT commingle those with money earned after you get married are considered separate property.   It is only assets accumulated after the marriage that become community property.  Again, this is my understanding and you should get a good lawyer to draw up the prenup, especially if you have substantial separate property.
lou   |     |   Comment #4
Great advice but sadly it is a financial fiasco for everyone except the divorce attorneys, who are have every incentive to run up huge legal bills by exacerbating the anger and the anxiety between the involved parties.
Anonymous   |     |   Comment #6
The best way to protect your money in divorce is never get married.
Anonymous   |     |   Comment #7
Why do you feel the need to marry her? Why not just live together w/o marriage?
Wil   |     |   Comment #10
#7: It is exactly because there are women who are stupid enough to live in a relationship like a marriage in practically every respect EXCEPT for the legal status and protection of marriage that our society has so many single parent (usually headed by a woman abandoned by her lover or husband) households, which all too often have to be subsidized by taxpayers. What do you think becomes of a woman and her children when, after cohabitation without marriage, the relationship breaks down and she is left to fend for herself? But to get back to this article, the best way of avoiding the costs of a divorce is by NOT getting divorced. By the way, I think a prenuptial agreement is a good idea, not only because it spells out the division of assets in the event of a divorce, but it will also spell out the responsibility for debts as well.
lou   |     |   Comment #8

This is the advice I would expect from readers (savers) of this site. In this day and age, I think I would have to agree.
Anonymous   |     |   Comment #9
Thank you lawyer, thats great advice , i would never want to leave her in a bad situation but just want to protect myself . She's a professional (banking) educated etc. but there is a massive diffference in each of our assets.

yes , there is  no financial upside to marriage for me anyway.

why? well after six years of being my girlfriend she wants more , don't want to lose her . Its hard because she's not a US citizen and they can't just travel to the US at will . Hard for them to get passports/visa etc.         she will not forgive me if i will not take the chance , her words and she's never heard this
Anonymous   |     |   Comment #15



To #14,


>> Typical Fillapinna guy.


Err ... Is that your way of "Profiling" based on country of origin?

- Anonymous


Anonymous   |     |   Comment #16


To #14,

>> She's young and strong and can survive in the jungle of Makati (financial district)

>> of metro manilla. Was class president, valedictorian , won the Miss (insert school name)

>> beauty and talent contest.

Hmm ... But despite all that "she" decided to marry a complete loser!  ... So one must wonder what sort of "talent" contest was it that she won ... No? 

... But then again as you indicate this ex-Husband of hers is a "Typical" Fillapinna guy, so if she had to marry someone, she chose a "typical" guy. ... That sounds fine!

- Anonymous
Anonymous   |     |   Comment #17
sorry about that profiling comment , i've just seen so many nice girls with everything going for them and then they get hooked up with some jerk . Her talent is musice she plays guitar , piano and sings . She falls blindly in love , maybe thats her achilles heal
moneysaver   |     |   Comment #18
Re prenuptuals, that is the advice I got and followed from a family law attorney in California a few years ago prior to getting married. I also had a substantial difference in the value of assets of my own vs. my wife-to-be's heading into the marriage.

My attorney who drafted the prenuptual agreement pretty much insisted that, after it was drafted based on discussion between myself and my fiancee at the time, that she have the document reviewed by and consult with an independent attorney representing her (at my expense).

As I recall, when it finally came time to sign and execute the prenuptual document, we also had a letter or some language confirming that she was signing the document after having been advised by independent legal counsel.

So it would seem that's considered the prudent way to go...
Anonymous   |     |   Comment #19
My husband had properties w loan and during marriage renting. Remodeling. Managing. Was his only job full time. We dont have prenup. Is the income produced community? Some income paid mortgage. Do i get a share in properties?

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