In the aftermath of a divorce, you may wish you had the gift of 20/20 hindsight during the process, especially as it relates to division of assets and spousal support. This is particularly true when you are not the primary wage earner, or a stay-at-home parent whose contributions to the family unit are nonmonetary. Regrets about a less than optimal outcome can often be avoided by planning – before, during and even after divorce. Here are some tips on setting yourself up for success during, before, and after divorce.
Tips for Setting Yourself Up for Success Before, During, and After the Divorce Process
Pre-Marriage Financial Planning
“A man who does not plan long ahead will find trouble at his door.” – Confucius
Planning a marriage is a happy process that hopefully serves as a prelude to many years of marital bliss. No one likes to think their marriage could eventually end in divorce. However, before the wedding date, consider making a record of the real and personal property you own. In Georgia, property owned prior to marriage is not subject to division in divorce. Assets of value may include business interests, real estate, bank accounts, stock, investments and retirement accounts. This can be as simple as taking a computer screenshot of online account balances you hold in your name. Better yet, take the time before marriage to download or scan your most recent account statements, save them to a folder and e-mail them to yourself.
If you have inherited, earned or otherwise acquired assets or interests of significance prior to your wedding date, including beneficial interests in a trust, consider consulting a family law practitioner about the preparation of a prenuptial agreement. Also called a premarital or antenuptial agreement, a prenuptial agreement is a contract between future parties to a marriage. The prenuptial agreement can include provisions regarding division of marital assets, preservation of assets acquired by the parties prior to marriage and alimony. Note that provisions regarding child custody and child support in a Georgia prenuptial agreement are unenforceable, because such issues always involve the best interests of the children which cannot be waived by contract. Although discussions with your partner about a premarital agreement have the potential to be uncomfortable, they are in fact more common than most people think and not just for high-asset individuals. It is advisable for both parties to a prenuptial agreement to provide full disclosures of their respective net worth so there is no future misunderstanding about what assets each party owned at the time of marriage. Even if you decide not to enter into a prenuptial agreement, the better course of action is to prepare a net worth statement of your assets reasonably close to a date prior to your marriage. Simply summarizing your premarital assets is most likely not adequate to establish your separate property interest in case of divorce. In Georgia, the burden is on the individual claiming separate property to prove it. Taking the steps now to establish a documented record of what you own prior to marriage is a wise investment of your time.
If your future spouse is the significant asset owner and requests that you sign a prenuptial agreement, note that the attorney retained by your partner represents only the interests of your future spouse. It is best in this situation to retain your own attorney to represent you in the negotiation of a prenuptial agreement.
During the Marriage
“The time to repair the roof is when the sun is shining.” – John F. Kennedy, Jr.
Even in the happiest of unions, both spouses benefit from financial transparency and awareness. If your spouse is the primary wage earner, it is especially important for you to understand your household income and expenses, as well as to know your overall assets and liabilities. If you and your spouse file joint income tax returns, gain a basic understanding of your reported income to the taxing authorities. Although spouses may in some cases file for “innocent spouse relief” with the IRS when financial misreporting of the other spouse is later discovered, as a threshold matter, parties who file taxes jointly remain jointly liable for obligations incurred during the marriage.
Keep good financial records during the marriage, including copies of all income tax returns and, to the extent practicable, account statements, insurance policies and any other documents relating to important assets or liabilities. Although you may lack the time to preserve monthly statements on an ongoing basis while working, maintaining a home and raising a family, try at least to download and save on a quarterly or year-end basis these types of documents. Consider using online financial tools to obtain a clear idea of your family’s expenses, which include necessary items such as food, clothing, personal care and shelter, as well as discretionary items such as travel, entertainment and gifts. Expenses should include not only yours and your spouse’s, but also your children’s, including private tuition expenses if applicable and extracurricular costs. An excellent (and free) online budgeting application, Mint, syncs your financial accounts and other assets and liabilities to help track incoming money and outgoing expenses. These types of online tools can be helpful not only in providing you with an excellent picture of family income and outgo, they also can be used to create budgets to live within your financial means. Some of these applications also give you the ability to run reports, including your overall net worth based on the assets and liabilities you have input into the program.
Pre-Divorce Financial Planning
“If you don’t know where you are going, you will end up someplace else.” – Yogi Berra
Should you find yourself in the unfortunate situation of contemplating divorce from your spouse, gather available financial information before hiring an attorney. If during your marriage you have maintained good financial records as described above, this task will be easy. If you have not, you can begin the process by requesting statements from the institutions holding your credit cards, automobile loans, mortgages, banking, investment, retirement and trust accounts. Many of these companies will permit you to download statements going back a couple of years. Gather tax records if you have them and any other information relating to your finances. Make copies of your and your spouse’s estate planning documents and powers of attorney. If you have not yet created a net worth statement, or at least a list of your assets and liabilities to the best of your knowledge, now is the time. Although both parties may be unhappy in the marriage, it may or may not come as a shock to your spouse that you are considering divorce. Exercise discretion in gathering this information, especially joint accounts to which your spouse may receive an alert if you are downloading documents you previously would not have shown an interest in. Once your spouse has gleaned that divorce is on the horizon, it will become more difficult for you to collect financials. It is also important for you to protect your own financial information by ensuring that online accounts are password secure and that you do not leave hard copies of documents readily accessible within the home.
Title to marital assets, although not definitive as to ownership, is important in forming a picture of what is to be divided in divorce. The same is true of marital debt. Become familiar with how accounts are titled. For example, is the house in your joint names, and is the mortgage in both names, or only one spouse? Does your spouse have ownership in any company or partnership? Is there trust account income or potential inheritance in the picture? Understand that he or she has a reasonable expectation of privacy even in the marital residence. Easily obtainable documents, such as papers kept in a file drawer historically accessed by you and your spouse or stored electronically to the cloud with a household password, are most likely fair game. However, documents that are kept under lock and key, either physically or electronically, may not be. If there is any question, refrain from accessing these types of documents before consulting with your attorney. Your lawyer may advise you that it is better to obtain these types of documents through the discovery process once the divorce action has been initiated.
Krista Cosgrove, a Chartered Financial Analyst and Principal at ZWJ Investment Counsel in Atlanta, Georgia, agrees that it is critical not only to assess, but also to prepare, your finances as much as possible in preparation for an impending divorce. “A first step is to freeze your credit so that new credit accounts cannot be opened in your name without your permission. Be aware of all joint assets and joint debt. Joint credit cards can be misused and impact the credit score of both account holders. Watch your financial account activity closely. Be aware of money movement in and out of and between accounts,” Cosgrove advises.
Finding an appropriate attorney to best assist you in protecting all of your interests in a divorce (not just financial interests, but also those involving child custody, if applicable) is a highly personal decision that involves a variety of factors, including the attorney’s expertise in family law, reputation in the legal community, professional memberships and ability to communicate effectively with you. Talking with friends who went through divorce themselves and can recommend their lawyers, as well as seeking referrals from financial professionals whom you trust, can be a good start to finding counsel who will best assist you in accomplishing your objectives in the divorce. Don’t hesitate to meet with several family law practitioners before you make this important decision.
The more financial information you have when it is time to file for divorce, the better. Filing for divorce in the heat of the moment can often leave the filing spouse in the dark financially and at a distinct disadvantage. Especially in the context of divorce, readily accessible financial knowledge is power.
During the Divorce
“Before anything else, preparation is the key to success.” – Alexander Graham Bell
In Georgia, parties are typically required to submit a sworn financial statement, known as a Domestic Relations Financial Affidavit (DRFA). The DRFA contains not only an itemization of monthly household income and expenses, but also a calculation of your personal expenses and your children’s expenses. The DRFA also contains elements of a net worth statement, because it requires each party to provide information regarding both marital and premarital assets and liabilities. Accuracy of the DRFA is critical in determining division of assets and liabilities, as well as your entitlement to child support and spousal support. An incorrect or inaccurate financial affidavit may result in prejudice to your case. If you have taken the time to evaluate your income, expenses, assets and liabilities during your marriage, preparation of the DRFA will be relatively straightforward. Preparation of the financial affidavit will take longer, be more costly and more vulnerable to error if you need to find and evaluate your financial information on the fly.
If you have minor children from your marriage, you will also need to prepare a child support worksheet. As with the DRFA, if you are a nonearning or lower earning spouse in the marriage, this document is key to determining appropriate child support to be paid by your spouse until your children reach the age of majority. Your respective incomes, payment of health insurance for the children, and the children’s special educational and medical expenses all factor into the child support worksheet. Child support worksheets in Georgia are created using an online calculator which estimates the monthly support obligation based upon state guidelines, with a court having the discretion to deviate from the calculation depending on the circumstances. Again, do your homework in advance and have at your disposal all available financial information regarding income and the children’s educational, extracurricular, medical and other needs.
Cosgrove emphasizes the importance of understanding what will happen to your assets should you die or become incapacitated during the divorce process. “You may want to change your health care and financial powers of attorney to someone other than your spouse if significant trust issues have developed, and similarly, you should review your insurance policies and retirement plans to be aware of the beneficiary designations and survivor benefits,” she advises. In addition to gaining familiarity with your own estate planning documents, you should attempt to gain an accurate understanding of your spouse’s insurance policies and beneficiary designations. If this information is not readily available, discuss with your divorce attorney the best way to obtain these documents, either informally by request or formally through discovery.
While the divorce process is never painless, regardless of whether it is you or your spouse who has initiated it, significant stress and worry regarding financial issues can be avoided by advance planning.
“Someone’s sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
Ideally, you have formed an awareness of your finances both before and during your marriage. Perhaps you were not able to gain this knowledge until during the divorce process. Either way, after your divorce is final, take steps to protect your financial health as you age. The same advice pertains post-divorce: plan, and plan ahead.
Hire a trusts and estates attorney to review your estate planning documents post-divorce, or to create them for you now if you never had them. Remember to update the beneficiaries on your insurance and retirement plans. If you have investment accounts, either prior to or as a result of divorce, you should have a plan in place that helps you toward your short and long-term investment goals. Consider utilizing the services of an investment professional and an accountant who can help you with this process.
After divorce, budgeting will be very important. If you had not already done so during the marriage, create and stick to a monthly budget that includes you and, if you have them, your minor children. If you were awarded alimony and / or child support, be aware of when your spouse’s obligation to pay these expenses end, and budget accordingly. Cosgrove recommends, if possible, that the newly divorced individual with no income other than alimony try to find employment offering health insurance benefits to help with cash flow. She is a proponent of living beneath your means in order to promote long-term financial security: “Try to spend less than your income so that you can save some money and build a cash reserve for emergencies. If you are receiving alimony, you will need to have a plan for how you will live without spousal support, either through savings accounts or your own income.”
According to Thomas Edison, “good fortune is what happens when opportunity meets with planning.” Although you cannot decide the financial outcome of your divorce given many factors that are not within your control, advance planning in the form of financial awareness will undoubtedly allow you to take advantage of opportunities and overcome obstacles which may arise during the process.
Renée Hom Neary is of counsel at Atlanta divorce and family law firm Boyd Collar Nolen Tuggle & Roddenbery. She guides clients in nearly every aspect of family law from prenuptial agreements through post-divorce matters, including contempt and modification actions. www.bcntrlaw.com