Protect Your Assets throughout Divorce Proceedings
Plan for the Worst, Hope for the Best …
—Susan Brousseau, CLU, ChFC, CFP®
A little financial planning can go a long way toward making sure that divorce does not completely disrupt a family’s finances. Divorce is one of the most common and serious threats to financial security in the United States. According to statistics from the Centers for Disease Control and Prevention (www.cdc.gov), approximately 43% of all first marriages in the U.S. end in divorce. Second marriages end in divorce about 60% of the time, and the statistics are worse for third marriages. After that, we've stopped counting. While divorce is an emotionally devastating experience, it can be financially disastrous as well.
Why Divorce Can Be a Financial Nightmare
It is easy to see how divorce can be financially traumatic to a family. For starters, many major family expenses—housing, clothing, food, transportation, and many others—will double as soon as the parents begin to live separately. The average cost of a litigated divorce is about $20,000. For families of moderate wealth, divorce can pose a serious threat to their standard of living. To understand better how a divorce affects finances, it helps to understand how property is divided when the marriage is dissolved.
Community Property States
There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, community property law stipulates that if there is no valid pre- or post-marital agreement, the court will simply divide co-owned property equally between the divorcing parties.
The question of what is equal has kept many lawyers in court for many hours. For instance, the value of a property separately owned by one spouse, but maintained or enhanced by the other spouse, may appreciate during the marriage. In such a case, the way the asset is titled will likely not be the determining factor in how the property is awarded. Instead, when the asset was acquired and how it was maintained are far more important in determining how the asset will be distributed by the court.
In a divorce with facts like these, a home that was solely owned by one spouse but cared for by the other may become partial community property. This can necessitate lengthy legal battles or the sale of property that has sentimental value.
Equitable Distribution States
Non-community property states are called equitable distribution states because courts in these states have discretion to divide the property in a manner that the court deems equitable and fair. The court will normally consider a number of factors in deciding what is equitable, including but not limited to the duration of the marriage, the age and conduct of the parties, and the present and future earning potential of each spouse.
The danger of equitable divorces is that courts often distribute both non-marital assets (those acquired before the marriage) as well as marital assets (those acquired during marriage), in order to create a fair arrangement.
Can A Premarital Agreement Protect You?
A premarital agreement (a prenuptial agreement, premarital contract, ante-nuptial agreement, etc.) is the foundation of any protection against the financial fallout of a divorce. The premarital agreement is a contract between the spouses that is written and signed before the marriage takes place. (See also “post-marital agreement,” below.) It specifies the division of property and income upon divorce. It can also state the responsibilities of each party with regard to the children, property, religion, and any other matter that the couple choose to address in the contract.
The agreement cannot limit child support because the right to child support lies with the child and not the parent. For couples who have not entered into a premarital agreement before the marriage, many states recognize the validity of a post-marital agreement which can set forth the same rights and responsibilities addressed in a pre-nuptial agreement.
Protect Your Children from Divorce
As you can see, the secret to protecting assets from divorce is keeping them as separate property and not commingling them with community or marital property. There are many strategies that are simple to execute. They range from mortgaging your house to signing a premarital agreement to creating trusts. Talk to a qualified financial professional to help you navigate these choices.
Susan Brousseau CLU, ChFC, CFP®, is Senior Vice President and Wealth Advisor for Blackhawk Capital Partners. You can reach her at (480) 505-2011, or firstname.lastname@example.org.
Kevin B. Perlberg, Donald (Trace) W. Tendick, Tom Kueht and Christopher Nei are registered representatives offering securities through United Planners Financial Services, member FINRA, SIPC. Advisory services offered through Blackhawk Capital Partners. Susan Brousseau and Mike Miller offer Advisory Services Only. Blackhawk Capital Partners and United Planners Financial Services are independent companies. *Neither United Planners nor Blackhawk Capital Partners offer tax advice. Please consult your tax advisor for specific guidance.