How to Protect Yourself Financially During a Divorce

Marriage is not always “till death do us part.” Time, unforeseen events, individual decisions, and emotional disconnect can lead couples to make the hard decision to separate or divorce. Divorce proceedings cost an average $10,000 to $15,000, according to LegalZoom (http://info.legalzoom.com/average-cost-divorce-20103.html). That’s due largely to lawyers’ fees. It’s vital that individuals minimize additional financial fallout. The last thing you need is another financial blow due to negligence, malice, or misunderstanding.

Research your state’s divorce and separation laws

Divorce and legal separation laws in the United States are decided on a state level. That means the first step to financial security is finding out when you stop being liable for debts incurred by your spouse. In Pennsylvania, for example, a debt and assets cutoff date is known as the “Date of Separation.” That date is either considered the day the divorce complaint is filed or the day that the decision is made to separate (either moving out of the house or into a separate bedroom). In other states like New Jersey, liability for your spouse’s debt doesn’t stop until the divorce is officially finalized. Couples can also, depending on the state, opt for a legal separation. Legal separation is a lot like a divorce, but the couple remains married, which allows them to file taxes together and remain on their spouse’s health insurance. It could be a solid stopgap if you’re unsure if a divorce is the right answer.

Plan ahead

Individuals who are separated or divorced might want to begin to track and document all potential assets. That means taking pictures of evidence, hunting down legal documents, and familiarizing yourself with your joint and individual financial portfolios. Spouses often employ temporary separations to collect evidence before officially filing for divorce. It might be best to assume your spouse is already considering what needs to be done to come out ahead if a divorce is imminent. Even If you don’t end up divorcing your spouse, you’ll at least have a better sense of your financial footing.  If you suspect the divorce might get ugly, you should also consider keeping important documents in a safety deposit box and having important mail sent to a PO Box. This will cut the risk of anyone stealing or destroying important documents during divorce proceedings.

Immediately protect your credit and finances

Separation and divorce leave an individual’s finances and credit score in jeopardy. An estranged party, who might or might not be feeling charitable, still has control over your financial health. It might be better to start separating yourself sooner rather than later.

Here are a few tips to protect yourself:

• Create new car insurance policies that aren’t tied to the other party (this protects you from the financial fallout of potential accidents or tickets).
• Ensure rental or homeowners insurance is in your name.
• Shut down joint bank accounts.
• Tell all lenders and companies that expect payments that you are going through separation or divorce proceedings. Give them updated contact information in case payments are late.
• Check to see if any loans or credit card payments can be frozen until the divorce proceedings are finalized.
• Ensure all loan, credit card, insurance, and utility payments under your name are paid, even if you agreed your spouse would pay that particular bill.
• Change all passwords to your accounts.

Negotiate support

Separation can be a long, grueling, and expensive task. Individuals in the middle of a divorce or legal separation proceedings can appeal in the courts to be granted temporary relief also known as “pendente lite.” The temporary support, if granted, could lead to the primary bread winner providing temporary alimony, child support, and household payments.  If the support isn’t granted, you might be able to petition the courts to have the other party financially responsible for part or all of the debt incurred while separated.  Divorcing or separating parties can also negotiate whether alimony payments are tax deductible.

Tax deductible alimony payments grant the individual who pays the ability to deduct the payment from their taxes and ensures the individual who receives the payments must file the support as income.  In some cases, it might be better to make the payments not tax deductible. This is more common if one spouse is in a higher tax bracket.

Separation and divorce can be a financially perilous time. Don’t forget, as you implement protective safeguards, to look into protecting your business from financial ruin as well.

*Signator Investors, Inc. and its representatives do not provide legal or tax advice as part of their business. Please make sure to seek legal and tax counsel from your own qualified advisors prior to making any finacial decisions.