Whether or not you acknowledge that any marriage can end in divorce, the possibility, regrettably, is there. I can’t tell you how many clients tell me they never saw divorce coming. Then, we find out together they are not very well prepared for the divorce process with regard to their finances.
Think about it this way. No one wants to face the possibility that your home could burn down, or that you could get into a bad car accident, yet we all buy insurance to protect ourselves just in case.
Consider the following advice a sort of insurance primer on “divorce finances,” that will put you in a more informed position if you ever find yourself in a divorce proceeding. In fact, much of it is just good financial information most adults should know anyway.
That said, it is possible — and wise — to be happy in your marriage and still attuned to the reality that not all marriages make it. The following is presented for your information only.
Openly discuss family finances with each other and agree on a budget.
Disputes about money and spending are often at the heart of many marital problems. Living within your means is a good rule of thumb for every family or individual, for that matter. Develop savings goals for major purchases and set up a budget together. Schedule time to regularly track your finances and get up to speed on where things stand.
Know the financial details of your marriage partnership.
Today’s marriages are actually partnerships in the eyes of the legal system, as well as most of society. Each spouse should have a working knowledge of their joint finances — incomes, retirement accounts, assets, debts, investments, taxes and more.
For example, carefully review your tax returns and understand what you are signing. You will be jointly responsible with your spouse for any misrepresentations. Similarly, debts incurred during the marriage are often marital debts (regardless of whether such debt is incurred by you or your spouse), so you should know the magnitude of any significant debt, the terms of any loans, and how the loan proceeds are being used. If you feel you don’t understand some aspects of finances, hire an expert to explain statements to you so do understand.
Make sure you are involved in financial decisions.
Carefully review all documents your spouse asks you to sign, and let him or her know you want to be involved in all financial decisions. If your spouse asks you to sign a document transferring your home or other assets from joint names to your spouse’s name alone, or to trusts for “estate planning” or asset protection purposes, ask questions. Do not allow yourself to be coerced when you may be signing something important. For instance, never sign away your right to your spouse’s 401k or IRA or pension. Consider meeting with an attorney who practices in the area of family law who can objectively explain the ramifications of what you are doing.
Maintain business and professional network.
If one or both spouses decides to take on child rearing or other family responsibilities that takes them out of the job market for a time, both should strive to stay up-to-date with their professional networks. Staying in touch with former colleagues is also a good idea. Consider attending industry events or conferences, or working part-time. Know what is going on in your field, so that, should you have to return to work, it won’t be like starting over from scratch.
Couples considering prenuptial or postnuptial agreements must each hire a lawyer to review the document.
If you are considering proposing a prenuptial or postnuptial agreement, you should take the time to discuss the possible terms of the agreement with an attorney. There are many different approaches to these agreements yours. Know the implications of each. Like insurance policies, the terms of these document do matter, so carefully read and understand yours.
If you own a business or an interest in a business, are entering the marriage with substantial assets, or expect to inherit or receive gifts of significant assets from your family during the marriage, you should discuss these matters with a family law attorney.
Understand the difference between separate and community property.
In many states, the law provides that premarital or otherwise separate property assets become marital property if such assets are put in the spouses’ joint names. You and your spouse may decide that you want to put everything, or just certain assets in joint names, regardless of either party’s separate property contributions to such assets. You should be aware, however, that in doing so you may be waiving a claim for a separate property credit and thereby making a gift to your spouse of the separate property that you contributed to such assets.
Whether you are married, engaged or have not yet met that special someone with whom you want to spend your life, consider this information food for thought regarding marriage finances. Knowledge of the law and some careful planning can help both spouses gain insight, feel a part of the partnership and have peace of mind with regard to their union.
This article is designed to provide readers with a general overview of the issues discussed and is not a substitute for legal or financial representation. For more information on divorce financial planning or divorce mediation, visit Patricia’s website, Lifetime Planning.