When people get married, they rarely think about getting divorced. This is absolutely normal—if you’re tying your life to someone else’s, it would be insane to start considering your separation from the start. However, the reality is that almost 50% of marriages in the United States end in divorce, so you should know what you can do to protect your financial security and assets in the event that you and your partner separate.

Getting a divorce is challenging in more ways than one. From everyday things such as where you will live to more emotional aspects such as custody agreements and letting go of someone, you love/loved. 

The financial side of divorce is yet another challenge that most people find themselves totally unprepared for. This article will discuss how to avoid a challenging financial situation during a divorce and what steps you can take to secure your assets before you get married. 

Start with a Premarital Agreement

If you’re not married yet, creating a premarital agreement (also called a prenuptial agreement or prenup) is something you should do, as it’s the first step to setting up any kind of financial protection. However, in most cases, people who are just about to get married and want to beat that 50% divorce rate are unwilling to bring up the topic, as they feel it would hurt their partner and cause trust issues from the start. 

With that said, if you have assets, it’s important to think realistically even if it’s not particularly romantic. One of the ways to avoid getting into a massive fight with your significant other is by bringing a third party into the conversation, such as a financial advisor, who can propose the idea and take the heat. 

Divide Assets, Debts, and Incomes

Many people want to make compromises and be as fair as possible, especially if they feel like they’re the reason why the marriage ended. While this is a good thing morally, it can turn sour when it comes to that person’s financial situation. 

The first thing to remember here is not to base everything on a 50/50 split. Having a good divorce attorney will help you understand what you can expect regarding distribution. You will need to consider not only retirement accounts but also joint investments, alimony, child support obligations, and childcare expenses. 

You also need to know that getting a divorce doesn’t automatically bind your creditors. For example, say you bought a family home and you have a mortgage. Even if your spouse remains in the home and takes full responsibility for paying for it, that will not get you off the hook with your creditors, as your name will stay listed as a co-borrower. 

That means there’s a possibility you will potentially pay for some of the mortgage, and it can also negatively influence your credit score. It’s a good idea to close all joint credit lines as soon as you can. 

Create a New Budget Based on Your Own Income

Once you get a divorce, your budget needs to change entirely, especially if children are involved. First, you will have to consider where you will live. This might include selling the family home and sharing the money or having one of the partners stay at your family home while the other rents out. 

Along with figuring out where you will live, you will also need to consider an increase in all of your expenses. After all, you will need to anticipate paying your own rent or mortgage without any assistance your partner may have given, and you will also have to budget differently for childcare expenses depending on the custody agreement. Be sure to remember that only one parent can claim the childcare tax credit, and if both of you are getting health insurance benefits from your employers, you will have to figure out which of the two policies offers better options for your children. 

You will also have to think about and readjust your financial goals for the future. It’s likely that up until now, they were more or less “family goals,” and now you need to think about a plan that is entirely your own. A good place to start is to call your financial planner when you reach this point, as they can help you make the best possible decisions, given your current situation and future goals. 

Contact a Mediator or an Attorney, Especially if the Divorce Is Messy

Almost all divorces are emotional affairs. People tend to get sad, sentimental, angry, and even vindictive towards each other. If you feel you’re heading in that direction, the best thing you can do is to hire a divorce attorney or a third-party mediator to help both of you focus on what you want to achieve with this divorce. 

In most cases, people contact a family lawyer or divorce lawyer, as they are experts that have experience in mediation and know how to handle messy divorces. Commonly, ex-partners who commit to being civil with each other and focus on keeping their children the priority are the ones who get through the process the most quickly and financially unscathed. 

With that said, if you’ve been cheated on or hurt in another way, it might be difficult for you to keep calm and cordial, which is why third-party mediators are helpful. Being vengeful or vindictive will only lead to a longer process and higher legal fees. 

Contact Your Financial Advisor/Planner

Along with getting a good divorce lawyer, you will also want to consider calling up your financial advisor or financial planner and getting their take on your situation. All good financial planners are familiar with divorce-related financial situations and can provide you with guidance to get you through the process with as little financial damage as possible. It’s also worth noting that you should contact your financial advisor before you get married. Not only are they great third-party mediators that can suggest to your spouse that you need to sign a prenup agreement, but they can also offer you other terrific advice to help protect your existing assets. 

Additionally, after you’ve signed a divorce settlement and you need to consider your budget and financial goals going forward, your financial advisor can help you decide your next steps. You have to consider your growing expenses, as well as what you would like to achieve financially in the next several years and decades. Of course, you will need to readjust according to your new lifestyle. 

Review and Revise Your Estate Plan

Regardless of whether you’re getting divorced or not, reviewing your estate plan every three or so years is a must. That’s because you will need to make adjustments depending on life changes, and by doing it frequently, you can avoid facing significant consequences. The first and most basic step you need to take during a divorce is to review your trusts, will, and any insurance policies that may have your spouse as a beneficiary. 

If you’re the owner of a company, the operating agreement will need to stipulate the disposition of liabilities and business assets following the divorce. If you have appointed your spouse as a power of attorney or healthcare proxy, you will also need to update all those documents. This same logic applies to retirement plans and investments so you can be certain your benefits go to a different loved one instead of your ex-spouse if something was to happen to you.

In Conclusion 

It’s easy to talk about the right decisions to make during a divorce when you’re not the person getting one. However, we all understand that separations are typically infused with a lot of stress, negative emotions, and anger, which makes it extremely challenging to make the right financial decisions. 

That’s why having an experienced financial planner by your side is necessary. With the proper financial guidance, you can be sure you’re not losing any of your assets during the separation and that you’re on the way to creating a good financial plan for your future. 

The team at Alpha Wealth Funds is prepared to help you reduce some stress during this difficult time and provide guidance as you navigate through the financial part of your divorce. If you’re not yet married, our experts can help you craft a plan that will protect your current assets in the future. Even if it’s not particularly romantic, reality shows us that divorces happen regularly, and it’s never a bad idea to secure your financial future. 

Please feel free to reach out to me on this or any of your investment needs or questions. I may not always have the answers at my fingertips, but I promise I will get them for you. Michael Torrence

Calendly link https://calendly.com/mt-awf/intro Work: 435.658.1934 Contact: 330.284.3211
Michael Torrence – Investment Advisor Representative: Michael was born and raised in Ohio and attended The Ohio State University. After College, he was commissioned as a 2ndLt in the United States Marine Corps. He attended his initial training in Quantico, Virginia, then graduated at the top of his Primary Aviator Class and was selected for the Strike (Jet) Platform.

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