Summer is for weddings, not divorces. But because approximately 10 percent of marriages fail during the first five years and 25 percent don't make it to their 10th anniversary (according to the U.S. Census Bureau), couples should be proactive and do some financial planning in case married life is short-lived.
If you are getting married soon, here are 3 simple steps you can take now to protect yourself financially if you face a future divorce. If your marriage works out, these strategies are smart fiscal practices that will benefit you and your family throughout the years.
1. Discuss Debt/Credit
Healthy discussions around money, expectations, debt and credit should take place well before your wedding day. Since couples are waiting until they are older to get married, chances are they have a credit history, for better or for worse. Review your credit reports together and decide how existing debt is to be handled. Not all debt is considered equal. If one person has student loans but the other has high revolving credit card balances, a discussion on spending habits and financial responsibility would be smart.
Establish and maintain credit in your own name once you are married. If you end up divorced, it could be easier to qualify for a mortgage or credit line if your ex's credit is separate from yours. Closely monitor your credit reports as part of your annual financial planning review to make sure that the information is current and correct It could take months to remove an incorrect statement and you may need your spouse's cooperation.
2. Protect Premarital Assets
Dividing assets can be tricky when couples split. Protect the assets you bring to the marriage by making copies of all bank, retirement, and brokerage statements, dated before your wedding day. In order to be considered your property in the event of divorce, the assets must be kept separate and not commingled with marital assets. If you place assets in the "yours, mine, and ours" category, you save a lot of time and money upon your split.
3. Create and Review Your Financial Plan
Work together to put your financial goals on paper and review it annually. To avoid unpleasant surprises upon a divorce, couples should both stay involved in the family finances and monitor budgets, accounts and investments regularly. When you have children, obtain a 30-year term life insurance on each parent's lives, especially if one stays home. Term insurance is inexpensive, the annual premium never changes, and a term of 30 years is typically enough to cover the cost of child care, housekeeping, college and even a wedding. If you divorce, you would both be covered at a time when your age or medical condition could preclude you from qualifying for life insurance or paying a higher premium.
Summer is for love, but good financial planning is always in season!
Gabrielle Clemens, JD, LLM, CDFA is a lawyer with a master's in taxation. She is a Vice President of Investments at UBS Financial Services in Boston and works regularly with divorcing individuals and their attorneys, mediators and collaborative teams to provide clarity on the critical financial issues that arises before, during and after divorce. She's been featured on CNN, Fox Business News, BusinessWeek, Bloomberg TV and Radio, and Huffington Post and has written extensively for the American Journal of Family Law.
Follow Gabrielle Clemens on Twitter: www.twitter.com/thedivorcelady
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Unlike credit card debt and mortgages; student loans are special. They cannot be discharged through bankruptcy. Technically you are not responsible for your spouses premarital debts, but were the family to find themselves in financial trouble; student loan creditors would always receive payment.
He was a nice man and it is a shame he became so very sick, but he was trustworthy about the money.
The moony attitude that love conquers all that surround marriage works in the favor of brides. It discourages pointed questions by either partner about what happens if one or both ever want to end the arrangement. With no pre-arranged exit plan, a partner who initiates divorce can rely on the prevailing terms of divorce. That is, the father gets evicted and forced to the fringes of children’s lives, children lose an actively involved parent, and the mother gains the house, the kids and a third or so of her former partner’s future income.
Perhaps mothers aren’t “all about the money.” But you’ll look far and wide to find one who volunteers herself to leave the family home, become an occasional visitor in her children’s lives and pay her former partner a third of her future income for many years. Does this mean they are “all about the love” or whatever the opposite is? I’m not sure it does.
This is critical. I owned outright a $200,000 sailboat before we got married. The fact that just a few thousand dollars of our dual income was applied to the boat gave my ex-wife half equity when she had an affair and divorced me four years later. I lost a hundred thousand dollars - she gained a hundred grand at the cost of a couple thousand in matching funds.
If you own something pre-marriage, make sure none of the joint money after marriage gets applied towards it, even a dollar, or it can become joint property.
If you don't marry, then you don't have to file a divorce. And no, a girlfriend does not have similar legal rights like a wife, NEVER.
Therefore, a young couple starting out with nothing may sign a pre-nup, but it seldom makes much difference twenty years later when they divorce and all property is co-mingled.
Better not to get married.
It may be unromantic to plan for the roughly even chance that a marriage will end in divorce, but it's also realistic, smart and likely to save everybody a tremendous amount of money and grief. It also probably would result in cancelling some marriages that the partners either weren't sufficiently committed to, or that they had unrealistic expectations for.
The main people who would be protected would be husbands. Women initiate the vast majority of divorces, usually against partners’ wishes (almost always against children’s wishes, but that's another topic,) so pre-planning for divorce would to a considerable degree be merely flushing brides’ backup plans out into the open.
Pre-planning might also help men realize that women are not, in reality, very good at commitment, at least if you consider commitment to consist of doing what you say you will. The standard verbiage about "until death do you part" really means, in a significant minority of cases, "until she thinks she'd be happier divorced." The more people, especially male people, who realize that, the better off we'll all be.
As for your money problems, I really couldn't care less. I do worry about the children, but that is it.
In regards to Item #2, many states when you get married your personal belonging become Marital Property. Likewise once married, even if you buy an item for your self, with your money, it is not yours. If you receive a nice personal gift, it is not yours.
2. Gifts are considered separate property.
3. Assets from a Will or Trust are also considered separate property because they are a GIFT.
4. If you purchase something with separate property that item that you purchase is not community property.
5. A judgment to one person is not community property.
6. Alimony is not community property.
7. Child support is not community property.
Regarding item #!, it is incredibly hard not to commingle property which you may have owned before the marriage - such as boats (joint funds to pay slip or haul-out fees), or classic cars (oil changes, insurance), etc.
In Washington state many (if not most) judges will gladly assign 50% to the woman if even a buck of married money is put into it - and almost certainly if there are little children involved in the divorce (the sympathy ruling).