How often do we hear, “Well, I got to keep the house,” to imply that the divorce settlement was fair? Beware of falling into this trap. Real estate is no longer the guaranteed appreciating asset that it once was.
No one gets married with the expectation that he or she might divorce in the future. You never want to think that it could happen to you, but when it does, make sure your assets are protected. Short of a prenuptial agreement, dividing your assets will likely be one of the most contentious parts of your divorce. So what steps can you take to make sure your hard-earned benefits are protected?
1. Establish Your Own Credit
This applies to single income more than dual-earning households. If you’ve been at home with the kids while your spouse goes out to provide for the family, you need to take steps to establish some credit of your own if a divorce seems imminent. Open a credit card account in your name and close joint accounts. Pay your bills on time and in full. Open personal checking and savings accounts to show lenders you have good money habits.
Beware of any lingering mutual debt; divide it between individual cards based on who spent what. Transfer your balances to a no-interest card, if possible. In the event your spouse gets more of the retirement account benefits, you’ll want to be as protected as possible.
2. Consider Hiring a Financial Guru
Divorce lawyers are your go-to assistance for all legal aspects of the divorce, but it wouldn’t hurt to hire someone who knows finances to protect your assets. Consider a Certified Divorce Financial Analyst, who is trained to know how long-term financial assets, like retirement accounts, are structured and the best way to divide them.
3. Don’t Dip into Your Retirement Accounts
Divorces can be pricey affairs, so it may be tempting to tap into your IRA or pension to help offset the out-of-pocket costs. This could prove to be a major faux pas. Most accounts have a 10% penalty to withdraw before you turn 59 ½, so be mindful about taking the dive. You’re better off borrowing from friends or family. Even putting the extra balances on a credit card will be more beneficial than the cost of taking money from an account that grows tax-free.
4. Don’t Assume the House Is the Best Choice
How often do we hear, “Well, I got to keep the house,” to imply that the divorce settlement was fair? Beware of falling into this trap. Real estate is no longer the guaranteed appreciating asset that it once was. When deciding on what you want out of the divorce, realistically consider your home’s real estate value and the tax implications of both the house and your retirement accounts. Make the decision that makes most sense to you.
5. Plan for Additional Expenses
As we mentioned, you want to avoid paying a penalty on your resources by drawing from your retirement account. That being said, you do have a one-time opportunity to draw out some cash penalty-free when dividing your assets. If you get to split your spouse’s retirement account, take a minute to think about what kind of cash you need before immediately rolling into your own IRA. If you’re cash-strapped from the divorce, consider taking some money out as a nest egg while you still can.
Divorce is an emotionally and legally complicated process. You’ll want an experienced legal professional by your side to help you protect your hard-earned assets. If you have any questions about your divorce proceeding, don't hesitate to contact an experienced and professional divorce professional for help or just for some answers to questions you may have regarding the divorce process and how to go about best protecting your benefits and assets. Make sure and do your due diligence when looking for professional help. Depending on your specific situation, you may need help from a divorce lawyer, mediator, financial planner, or all of them. You may also already have a professional you trust and have worked with in the past. No matter what your circumstances are, make sure to do your homework when choosing who to work with.