Getting divorced will impact your finances in numerous ways. Whenever you go from supporting one household to two on the same overall income, you can expect to have some financial challenges. The situation can be mitigated, however, if you are proactive and take steps ahead of time to protect your assets.
Here are several helpful tips for protecting your assets during a divorce:
Understand your Entire Financial Picture
What you do not know about your marital assets cannot be factored into a fair and equitable distribution of property. Make it a top priority to find out as much as you can about the household finances, especially if you are not the one who normally handles them. Log into every account you know of and have access to and obtain the details of each. Look for any paper statements that are kept in files and obtain copies of credit reports for both you and your spouse.
If you suspect that your spouse is hiding assets, a forensic accountant may be able to help uncover them. This is sometimes necessary with couples who have a high net worth and/or a more complicated financial picture. Your attorney will be able to provide additional guidance on how to deal with this issue if it applies to you.
Know what Everything is Worth
You should not only have a good understanding of everything you have, you should also know what it is all worth. It is fairly easy to understand the value of a bank account or IRA/401(k) by looking at the statement, but it is a little more challenging to determine what a piece of real estate is worth, or a small business, a piece of expensive jewelry, a rare painting, or some other unique asset. In many cases, professional appraisals will be needed to obtain an accurate valuation of your marital estate.
Close Down your Joint Accounts
Having joint accounts that link you to your spouse could become a serious financial liability. If you have joint credit accounts, they should either be paid off and closed down or transferred into one of your names only. Otherwise, your spouse could run up a high credit balance, which is even more of a risk if he/she is a spendthrift and/or prone to acts of vengeance. Joint bank accounts should also be closed or transferred to one party, and you should open a personal bank account which your spouse cannot access. Again, leaving a joint bank account can put you at risk that your spouse could drain it completely before you have an opportunity to withdraw what belongs to you.
Obtain a Separate Mailing Address
In addition to separating your accounts, it would be a good idea to receive your mail somewhere other than the marital home. The last thing you want is for your spouse to be snooping through your private mail when you are about to start living separate lives, so find a new place to send your mail. You could rent a PO Box or use a private mailbox service, or you could have your mail forwarded to the home of a family member or close friend.
Protect your Valuable Property
If you have valuables that you believe your spouse might try to take, find a safe place to store them while the divorce process is ongoing. If these items belong to both of you and are part of the marital estate, do not hide the fact that you have possession of them, or you could be accused of trying to hide them yourself. Keep a detailed record of the items you have and their value so all of this can be included with the distribution of property. If you are moving out of the marital home and your spouse is staying in it, before you leave take a photographic inventory of all the major personal property and furnishings throughout the home. This will make it easier to account for later, and could assist a personal property appraiser, if you end up hiring one, to be sure all property is appraised in the event some goes missing after separation.
Understand and/or Get Help with Tax Issues
Getting divorced will most likely cause some tax issues. For example, your filing status will change, and there is a good chance you will end up in a different tax bracket. Certain actions could trigger tax consequences as well, such as selling a piece of real estate. Be sure to consult with a tax professional so you fully understand how your financial decisions will affect your taxes.
What Are the Most Common Financial Mistakes Made During Divorce?
Unlike a community property state – in which assets are divided equally in a divorce – South Carolina is an equitable distribution state, where the family court will decide who gets what based on what they deem to be fair and equitable. This may or may not result in a 50/50 division, depending on the circumstances.
While you may have an emotional attachment to certain assets, like a car or home, you need to determine if those assets are going to be worth fighting to keep. For example, the car may no longer be practical for your budget or require too much upkeep. Or you may understandably love your home, but if you can no longer afford the mortgage payments on your own, or afford to pay your spouse their portion of the equity in the home, it could be a better idea to give it up. Focus on the assets you can realistically manage that will be worth holding onto.
Not Participating Meaningfully in Mediation
Mediation often results in a healthier outcome for divorce, as opposed to going to trial. It’s less contentious, much less expensive, and is usually far less emotionally taxing as going to court. Mediation is required for all cases in S.C. family court if a case hasn’t already been resolved. The key is taking mediation seriously, preparing for it thoroughly with your lawyer, and knowing what to expect. All of these preparation steps will help you to participate in mediation more meaningfully to increase your chances of reaching a reasonable resolution.
Hiding Assets
Sometimes, one spouse will try to hide their assets from the other so they don’t lose them in the divorce. However, this is not advisable for a number of reasons. Not only can it potentially be illegal, but it can have highly negative repercussions in the event those assets are discovered during the divorce process. If you hide assets, you could face punitive measures from the court which will detrimentally affect your ultimate financial standing. If your spouse signed a prenup or a postnup, then the assets you had before you got married will likely be safe and not subject to division. In any case, you need to disclose all your assets to your attorney no matter what.
Not Considering the Tax Implications
When it comes to divorce, the spouse who pays alimony can no longer deduct it from their taxes. They used to be able to, but that law changed in 2019. Additionally, if you receive certain assets in the settlement, you may have to pay taxes on it, which is something you might not have considered if your spouse took care of the bills. It’s always a good idea to consult a professional who knows the ins and outs of the tax implications of divorce before working out alimony and how assets will be divided.
Failing to Get Their Finances in Order
Let’s say while you were married, your spouse handled all the bills, investments and other financial aspects of your life together. Now, you’re out on your own. One of the first things you should do is get your finances in order, which includes writing down your assets and debts, tracking your monthly earning and spending, and creating a budget. Even if you have a great job and/or you’re receiving alimony and child support, you should still be prepared for your new financial reality.
The division of your marital assets is going to be a negotiation, which means each side will need to be willing to compromise and give up some things in order to reach a settlement. But still, it is far less mentally and emotionally taxing to do it this way than to battle it out in court. Going into the negotiation, it is very helpful to let your attorney know what is most important to you.
This is true not only from the standpoint of which assets you want to keep, but also for other issues that must be resolved, such as the parenting plan, visitation schedules, etc. if you have minor children. When your attorney knows what you value the most, they can better represent you and secure the most favorable outcome possible from the divorce proceeding.
Get Experienced Legal Help Early On
If you are facing a divorce, it is best to retain skilled legal counsel as early as possible in the process. Having an experienced attorney by your side from the outset will help ensure that you are taking all of the right steps (during each phase of the process) to protect your assets and blaze a smoother trail toward the post-divorce new life you are looking forward to.
Cate & Brough, P.A.
