When facing a divorce, many will think about the big items- what to do with their house, how much will child support be, and who pays the IRS debt? It’s been our experience that a little planning before a divorce is filed can help save frustrations later on in the divorce process. Melody Swilling breaks down the little thought about financial issues that become bigger headaches later on in contested cases.
Retirement Account Contributions
Do you have a 401k, 403b, or IRA contribution deducted from your paycheck? Have a plan as to whether you intend to keep contributing once a divorce is on the horizon. Many people assume that their retirement account contributions post-separation are theirs alone and their spouse has no claim to them. This is simply not true. The default in Georgia is that all assets and debts are divided as of the day of the divorce. This often means that someone who has contributed heavily to their 401k during their pending divorce case and has seen a large growth in their 401k balance after the day the considered themselves separated from their spouse, has grown the total financial health for both spouses. While having more assets to divide can be helpful, it can also be a sore subject for someone to consider at the negotiation table if they are living apart from their spouse and feel like it’s only their efforts growing the asset. Planning for how your assets are invested prior to being in the middle of a divorce. Once the divorce is filed, significant changes to your finances without an agreement or Court permission expose you to being admonished by the Court or losing the trust of your ex-spouse in how candid you are being about your financial position.
Depending on how you and your soon-to-be-ex-spouse have handled the finances during the marriage, all of the parties’ incomes may have been historically deposited into a joint account where the household bills were paid from. Many clients are concerned about changing their payroll deposit to a separate bank account once they begin the separation process informally and later formally through a divorce filing. Again, planning and timing is important. If there is a discrepancy in income earning, lack of trust financially and/or emotionally, or a history of spotty bill payments, it may not be a productive move to change your direct deposit without sitting down with your spouse to discuss how your financial separation will look. Making these unilateral changes can often ramp up the tensions and lack of trust already seeping into other areas of your relationship with your spouse. Many people also assume that depositing your paycheck into an account just in your name insulates it from being divided in the divorce. If you don’t have a prenuptial agreement stating that explicitly, this assumption is wrong. While it may be a smart move to protect the marital funds from a spending addiction, or to ensure that the mortgage is paid, making this dramatic change without discussing with your attorney prior to the divorce filing can set you back several steps in reaching an amicable solution in your divorce.
Transferring Assets Out of Your Name
Trying to shuffle around assets like car titles, or adding family members to deeds on real estate, or transferring large sums overseas to family right before the filing for divorce are common red flags. Think twice before doing anything of this kind and consult an attorney prior to the transfer. It will likely not protect the asset the way you intend, but rather affect your credibility with the Judge, your spouse, and may expose your family to being sued in your divorce to bring the asset back into the case. There is ample case law that supports fraudulent transfers being addressed in the divorce division of assets and debts.
Retirement Account Divisions
A common question post-divorce is “where is my check for my award from his/her retirement account?” While some retirement account plans will liquidate, or cash out, a small retirement account when you leave an employer or if divided in a divorce and too small to keep as a retirement account, this is not the standard process. Typically, the retirement account award is transferred into an IRA or a separate account with the retirement provider in the spouse’s name. Each retirement account has a different process. Consulting with a Financial Planner prior to filing a divorce about your options can guide you in negotiations, but also realistic expectations on post-divorce finances. You need to already be thinking on how to invest a post-divorce retirement account and what that actually looks like for your case. Knowing what your options are prior to filing for divorce can be helpful to guide negotiations to maximize your post-divorce cash flow and investment potential. Short story, don’t plan on a cash payout out automatically happening.
Run a Credit Report
Do you know all the debts showing in your name? Taking the time to check your credit report for any debts linked to your credit can help you navigate how those marital debts should be divided. If you have concerns about whether your spouse is opening debt in your name, or are unsure what the debts of the marriage are, this is the place to start.
Consult with an experienced family law attorney before making any pre-divorce financial changes.