spending

Divorce and Your Money

Take these steps to avoid financial disaster.

In the short run, divorce is an emotionally wrenching experience for all involved. In the long run, it can sow the seeds of financial disaster if one spouse lets the other dominate the process. Divorce is rarely fair. This information can help you make it less unfair.

If you feel a split is imminent, take these steps first.

1. Consult a lawyer.

2. If you do not have a credit card in your own name, apply for one.

3. Apply for checking and savings accounts in your own name.

4. To protect money or investments held in joint accounts, withdraw half of the money. If you withdraw all of the money the court could order you to give half back. Another option is to change the signature authority on any joint account so that both of you must sign in order to complete a transaction.

5. Collect all the information you can find on your spouse's bank accounts, mutual fund and brokerage accounts, pension plans and retirement funds, insurance policies, and any other financial asset, such as real estate.

6. Get credit reports for both you and your spouse.

7. Hunt up copies of state and federal income-tax returns from the past several years and make your own copies.

Your State Matters

In a divorce proceeding, reliable financial information is crucial. What you can do with it will depend on the laws governing divorce in your state.

Community-property states.

The community-property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — consider any assets acquired during your marriage to be owned equally by husband and wife, and they will be split 50-50 in divorce.

Non-community-property states.

In the remaining states, so-called equitable-distribution laws govern the division of a couple's assets. Some states divide only assets acquired during the marriage, while others consider everything available for divvying up. But marital assets aren't necessarily divided equally. In some states the distribution laws take on a punitive aspect by considering which partner seems most at fault for the breakup.

Future pension payments, stock options, profit-sharing plans, and other deferred benefits also count as divisible assets. Federal law governing pensions and deferred-income plans provides some protection here. A covered worker can't cut a spouse out of a share in such plans without the spouse's written consent.

Alimony.

No matter where you live, alimony isn't what it used to be. Now a husband or wife usually has to provide financial support to an ex-spouse for a limited time, usually two to five years. Alimony is ordered by a court on the basis of one spouse's need or entitlement and the other spouse's ability to pay.

Child support.

Every state relies on a standardized formula to determine a minimum level of child-support payments. Courts can award more if they choose. Federal law requires states to review child-support agreements from time to time and adjust them for inflation or changes in parents' income.

Because child-support payments usually end when the child reaches 18, it's a good idea to write an agreement making clear who will pay for the child's college education. Also, if you are to receive child-support payments, insist that the paying spouse purchase a life insurance policy covering the term of the payments, naming you as the owner and beneficiary of the policy. Your ex-partner will also be unable to change the beneficiary without your agreement.

Keeping Down the Cost of Divorce

Mediation.

In many cases, mediation can be a less expensive and much faster way to arrive at an agreement. A mediator will guide you through the process, not make decisions for you. Still, before signing a property settlement, you might want to have it reviewed by a lawyer to make sure you haven't overlooked something. You can find a mediator through the Association for Conflict Resolution Family Section.

Do-it-yourself divorce?

Do-it-yourself divorce kits are available in many states. Use them for guidance, but don't attempt a divorce on your own. If your situation is simple and you're both eager to settle your differences and get on with your lives, then you can quickly arrive at an agreement in mediation or through your lawyers. Do-it-yourself divorces should be reviewed by an expert before they are finalized.

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