Maybe divorce is on your mind. Or you think your spouse might be thinking about it. Well, don’t wait for the Big Talk before you take steps to prepare for a possible split. Although you may feel a bit sneaky maneuvering to get your finances in order before anyone has even uttered the “D” word, doing so may help you head off unpleasant financial surprises down the road.
“Clients tell me all the time that they wouldn’t have thought in a million years that their spouses would drain savings accounts, make art and jewelry disappear, run up credit-card charges or destroy financial records – until they do,” says Cheryl Hepfer, a family-law attorney in Rockville, Md., and president-elect of the American Academy of Matrimonial Lawyers. “You never know how people will react after the decision to divorce is made.”
Here are five steps you’ll want to take now to avoid any financial fallout that may await if you ultimately decide to call it quits:
KNOW WHAT’S YOURS
To negotiate a split effectively – and profitably – you need a complete picture of all the family’s assets. “Most people just think, ‘What do I want?'” says Gayle Rosenwald Smith, a family-law attorney and author of Divorce and Money. “But if you can’t identify all the things you own, you’ll lose the ability to fight for them.” Here is a list of documents to start gathering now. They will help you piece together the totality of your marital finances. Make copies and file them away in a secure place. If you are afraid your spouse might destroy them, leave them at a friend’s or relative’s house.
€ Recent pay stubs for you and your spouse.
€ Five years of tax returns, including business returns.
€ Recent joint bank-account statements. Make sure the account numbers, the names of the banks or financial institutions, the type of account – savings, stocks, or bonds, for example – and the balances are included. Update copies of all monthly or quarterly statements as they come in.
€ Statements for all accounts you own separately, including copies of retirement-account statements and current credit-card bills. Again, update as new paperwork arrives.
€ Copies of all life-insurance policies.
€ Closing statements and deeds to any property you own.
€ Copies of loan agreements for motor vehicles, boats, motorcycles, and any other assets you have financed.
Also make a list and take pictures of all valuables, including collectibles, furniture, and jewelry, to make sure you can prove they exist. “Your spouse may take them away and you need to document their condition,” says Diana Mercer, a family-law attorney and co-author of Your Divorce Advisor.
Also print out any computer records that you need to prove ownership of valuables, and business records you will need to prove the income of a company owned by you and/or your spouse. “Computer files, or sometimes the computers themselves, seem to have a way of vanishing,” Mercer says.
TALK TO A LAWYER
Talking to an attorney before announcing your intention to split may seem devious, but doing so can help you avoid big mistakes that could jeopardize your finances. Schedule an initial consultation with at least three attorneys before you choose one. These sessions may be free, but you should be prepared to pay $150 to $500 for an hour of advice.
You can find local attorneys who specialize in divorce law at the Web site of the American Academy of Matrimonial Lawyers (www.aaml.org). Or search the Martindale-Hubbell Legal Network database, which lists lawyers by specialty. (Look under family law at www.lawyers.com.) Also get recommendations from local attorneys you know and from friends who have divorced.
On your first visit, remember to bring the financial files you assembled as well as a list of questions, including these five:
1. How much do you charge? Divorce isn’t cheap. It can run into the tens of thousands of dollars. Lawyers usually start off by requiring that you deposit several thousand dollars in an account as a retainer they can draw on for expenses.
2. How is property typically divided in my state? The answer will depend largely on whether you live in a community- property or equitable-distribution state. If you are married more than 10 years, you and your spouse may be entitled to a portion of each other’s Social Security benefits.
3. Do you practice divorce law exclusively? You should look for a lawyer who devotes his or her entire practice to divorce in your state and has done so for five or more years.
4. Is it more important to litigate or to settle? A negotiated settlement allows you to avoid a costly court battle. But it’s also important to have an attorney who won’t hesitate to fight if the opposition tries to take advantage of you.
5. Who are your typical clients? Choose an attorney who works with both men and women so he or she can effectively anticipate the arguments and tactics of the opposition. Also, if you’re a business owner, for example, make sure the attorney has experience with business-owner clients.
STAY PUT IF POSSIBLE
Unless you fear physical violence, it’s usually worth the emotional discomfort to stay in your home as long as possible during a divorce.
“Most people don’t realize it costs more than twice as much to run two households,” says Smith. If one of you moves out, you and your spouse will not only have to pay two sets of household bills, but also will need to buy furniture, kitchenware, sheets and towels, and, if you’re a parent, another wardrobe and a set of toys for each child. The longer you stay in your home, the more money you’ll be able to save for the move.
“Staying in the home is less stressful and less disruptive for children,” says Marsha Kline Pruett, associate professor of law and psychology at the Yale School of Medicine. Your state law, however, may require you and your spouse to separate physically for a period of time before you can obtain a divorce. Generally, moving out will not diminish your ownership rights to your home. Check with the attorneys you consult about the law in your state.
FOCUS ON YOUR BENEFITS
You need to be able to support yourself and your share of family expenses, such as health insurance, after a divorce. If you’re unemployed or if you’ve been working part-time, consider getting a full-time job as soon as possible to secure your own health-care and retirement benefits. If you have health insurance through a spouse’s plan, you will lose it when the divorce is final. Under the federal Consolidated Omnibus Budget Reconciliation Act, or COBRA, you may continue the coverage you had under a spouse’s plan for up to 36 months after your divorce, but you’ll have to pay the monthly premiums on your own.
If you switch jobs, choose your health coverage with the future in mind. For example, you may be adding children to your plan if you proceed with your divorce. If you stay with the same employer, review your coverage during your company’s open enrollment period, which is generally in the fall.
TRY TO PATCH THINGS UP
Before you decide to go ahead with a divorce, you might want to try to work things out. “Many people I see clearly have problems with their marriage that can be resolved,” says Barbara Handschu, a family-law attorney and president of the American Academy of Matrimonial Lawyers.
A marriage therapist may be able to help you work through your anger over a spouse’s affair or help you settle disputes about the way you raise your kids or handle your finances. You can find a marriage therapist through the American Association for Marriage and Family Therapy, a professional organization that represents more than 23,000 therapists in the U.S., Canada, and abroad, at www.aamft.org. Therapists typically charge between $30 and $200 an hour.
Reprinted with permission from Consumer Reports Money Adviser.
