Protecting Your Personal Finances Through Divorce

Protecting Your Personal Finances Through Divorce

Divorces are very complicated and can take a huge emotional toll on you. The last thing you need is for your divorce to be a financial disaster as well. One of the biggest questions on everyone's mind during a divorce is "How are we going to split our assets?" Unfortunately this is a complex question because it varies from case to case due to state laws, judges, and each individual situation.

State Laws

Most states use equitable distribution to divide marital property. This method looks at the financial situation of each individual, so although it is more flexible, it is extremely difficult to guess what the outcome will be.

There are nine community property states that consider all property acquired during the marriage to be equally owned by each spouse and is split 50/50 in a divorce.

Know What You Are Worth

To calculate your and your husband's net worth, add up all of your assets, then subtract all of your liabilities. Make sure you know the current value of your home; have your home appraised since the value could have gone up significantly since you purchased it. It is best to consult with a financial expert to help you assess the value of your investment accounts--both their current and their future value. Be sure to have any businesses or collections such as fine art appraised as well.

Splitting Investments

Divvying up your stocks, bonds, 401Ks, IRAs, pensions and other investment accounts can be a daunting task. The bottom line is the share of marital assets you get after the tax man gets his. Say your spouse handles all the investments and offers to split them 50/50. Sound fair? Maybe and maybe not. Be sure to look at the value of your assets relative to your spouse on an after-tax basis. Then decide if you like the deal.

Many women are unaware that investment accounts have hidden costs like taxes and surrender charges that you need to take into consideration before liquidating or splitting up. It is best to hire a financial professional to help you come up with a property division settlement; they will be able to help you see your whole financial picture while taking into consideration tax issues and future valuation of assets.

Some assets are more easily split than others. In order to get part of your spouse's pension or 401(k), you'll need a lawyer to draw up a qualified domestic relations order, or QDRO. There are several options, including a one-time payment, monthly payments at retirement, or a lump-sum payment that you transfer directly into your own IRA where your money will continue to grow tax-free until you retire. IRAs can be divided without a QDRO, as long as the division is clearly specified in your divorce agreement.

Long-Term Value

A key thing to keep in mind is to not give up long-term value for immediate gain. When looking at what assets you want to walk away with after this divorce, make sure you take into consideration the long-term value of these assets, not just the current value. For example, If you give up a pension in exchange for keeping the house or up-front money, you may feel short-changed when you reach retirement age. A pension can be very valuable down the road.

Knowledge is Power

The National Marriage Project at Rutgers University conducted a study that found that a man's standard of living usually increases by 10% after a divorce while a woman's standard of living usually drops by 27%. One of the factors in this is that women are more likely to be unaware of the family's financial status. It is incredibly important to do your research on your financial situation and fully understand it so you will be better prepared when it comes time to negotiate your divorce settlement.

Related Articles:

When Your Ex Screws Up Your Credit, by financial expert Sanyika Calloway Boyce

Don't Get Even...Get Smart, by financial advisor Maryann Kelly

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