Divorce is an emotional and stressful experience, but it’s also a time when you need to be vigilant about your financial future. Protecting your assets during this process is crucial to ensuring long-term stability and preventing financial hardship. Whether you're just considering divorce or are already in the process, there are several strategies you can implement to safeguard your assets.
1. Understand Your Financial Picture
Before making any moves, it’s essential to have a clear understanding of your current financial situation. This includes knowing all assets, liabilities, income, and expenses. Make sure to:
Gather documentation for bank accounts, investments, retirement accounts, mortgages, debts, and tax returns.
Create an inventory of personal property such as homes, vehicles, jewelry, and other valuable items.
Know the difference between marital and non-marital assets, as only marital assets are typically divided during divorce.
A financial advisor or a Certified Divorce Financial Analyst (CDFA) can help you assess your financial picture and ensure you're not overlooking any important details. Knowing your finances is the first step in protecting them.
2. Open Separate Accounts
If you haven’t already, it may be time to open personal bank and credit accounts. By establishing your own accounts:
You’ll have direct control over your finances.
Understanding better your spending
After agreeing with your spouse, you can start separating your income and future financial decisions from your spouse.
However, avoid making any drastic financial decisions, such as emptying joint accounts, as this could backfire during legal proceedings. Ensure that all actions are transparent and above board.
3. Freeze Joint Accounts and Credit Cards
To prevent your spouse from racking up debt in your name or draining accounts, it’s important to consider discussing with your lawyer if you could freeze or close joint accounts as soon as the divorce process begins. Notify creditors and your bank in writing and keep copies of all correspondence.
If you can't close an account outright, you can request that it be frozen or that any withdrawals require both parties' consent. This will prevent unauthorized access or spending.
4. Secure Your Digital Assets
In today’s digital age, protecting your online accounts is just as important as protecting your physical assets. Take steps to:
Change passwords for email accounts, financial apps, and social media profiles.
Update two-factor authentication on sensitive accounts.
Back up important financial documents and correspondence.
Digital footprints can provide insight into your financial situation, and securing these assets will protect you from potential financial manipulation or misuse.
5. Consult a Certified Divorce Financial Analyst (CDFA)
Hiring a Certified Divorce Financial Analyst (CDFA) can be one of the best decisions you make during the divorce process. A CDFA helps you:
Evaluate your financial assets.
Understand the tax implications of dividing assets.
Ensure an equitable distribution of property and retirement accounts.
CDFAs are trained to assist with the specific financial complexities of divorce, helping you navigate areas where a general financial advisor might not have the necessary expertise.
6. Don’t Forget About Retirement Accounts
Retirement accounts like 401(k)s, IRAs, and pensions are often significant marital assets. Dividing these accounts can be complicated and subject to various tax implications. Make sure to:
Understand the terms of any Qualified Domestic Relations Orders (QDRO) required to divide retirement plans.
Know the tax implications of dividing assets, and ensure that you won't be penalized for early withdrawal if you need access to retirement funds.
Dividing these assets incorrectly can lead to significant financial losses, so working with a financial expert is key.
7. Consider the House Carefully
Many people, especially women, are emotionally attached to their homes and want to keep them after divorce. However, this can be a costly decision. Before deciding to keep the house, consider:
Can you afford the mortgage, property taxes, and maintenance costs on your own?
Will keeping the house prevent you from pursuing other financial goals, such as retirement or saving for your children’s education?
In some cases, selling the house and splitting the proceeds may be the more financially responsible choice.
8. Track and Protect Inheritance and Gifts
Inheritance and gifts from third parties are typically considered non-marital property. However, if these assets are comingled with marital property (for example, placing inherited money into a joint account), they may be subject to division. To protect these assets:
Keep them in separate accounts and avoid using them for joint expenses.
Provide documentation that proves the inheritance or gift was intended solely for you.
Consult your attorney or financial advisor for help with safeguarding these assets.
9. Update Estate Plans and Beneficiaries
As your life changes, so should your estate plan. After your divorce, make sure to:
Update your will, powers of attorney, and any trust documents.
Change beneficiaries on life insurance policies, retirement accounts, and other payable-on-death accounts.
Failing to update these documents could result in your ex-spouse unintentionally inheriting assets or having control over important financial or healthcare decisions.
Divorce is not just an emotional process but a financial one, too. By being proactive and taking steps to protect your assets, you’ll safeguard your financial future and prevent further stress. Working with a team of professionals, including a Certified Divorce Financial Analyst, attorney, and financial planner, can help you navigate this challenging time and come out stronger.
If you’re considering divorce or are in the process, schedule a consultation with Sophie Helenek, CDFA and CDC, for personalized advice on how to protect your assets and secure your financial future.
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