Top 10 Ways to Protect Your Money in a Divorce
If you have never gone through a divorce, then the old adage is true that “You don’t know what you don’t know.” So, in order to help you gain some knowledge about protecting your money in a divorce, below are the top 10 ways to do that.
1. Know What You Have - Gather documents, information, location and names of all accounts.
In Colorado, there are certain documents that are required to be disclosed during the initial stages of the divorce process, so it is important to know where these documents are and to have them accessible:
- Income tax returns (most recent 3 years) for personal and business, including all schedules and attachments.
- Credit or loan applications prepared during the last three years.
- Business financial statements prepared during the last three fiscal years and any periodic financial statements from the last 2 years.
- Real estate documents showing title and value of all real property, personal and business.
- All documents creating debt and the most recent debt statements showing the outstanding balance and payment terms.
- The most recent account statements or other documents identifying each investment in which a party has and personal or business interest.
- The most recent account statements or other documents identifying each employment benefit of a party.
- The most recent documents identifying each retirement plan of which a party is a beneficiary and the Summary Plan Descriptions.
- The most recent account statements identifying each account of a party at banks and other financial institutions.
- For each income source of a party in the current and prior calendar year, a current income statement and the final income statement for the prior year. Each self-employed party shall provide a sworn statement of gross income, business expenses necessary to produce income, and net income for the prior three months.
- If seeking child support, any documents that show a party’s average monthly employment-related childcare expense.
- All life, health, and property insurance policies and current documents that show beneficiaries, coverage, cost (including the portion payable to provide health insurance for child(ren)), and payment schedule. If seeking child support, the policy and cost information regarding the child(ren) shall be provided.
- If seeking child support, all documents that show average monthly expense for all recurring extraordinary child(ren)’s expenses.
2. Don’t Make Any Rash Decisions – Especially Pre-Divorce. Any pre-divorce major changes in income, title of assets, job position, sales of assets, etc., will be highly scrutinized.
As Colorado courts divide marital property equitably upon divorce and as both spousal
maintenance (alimony) and child support guidelines use income as a factor in determining how much one spouse pays to the other, it is important to be financially transparent pre-divorce and during the divorce. Once you file for divorce and the other party is served with the required documents, an automatic injunction goes into effect and neither party is allowed to transfer, encumber, conceal, or in any way dispose of, without the consent of the other party or an order of the court, any marital property, except in the usual course of business or for the necessities of life.
Specifically, regarding assets, one important factor to know is whether or not your assets are marital or separate property. If a court determines that you changed the title of marital assets or sold marital assets immediately prior to a divorce, then you will have the burden of proving that such action was done fairly. If the court finds that your actions were not fair and finds that you committed constructive fraud (gained an unfair advantage over your spouse by using deceitful, unfair measures), then the court may require that you financially reimburse your spouse for his/her half of the asset and the court may penalize you for committing fraud.
Regarding income, if you suddenly change jobs and obtain a job with much lower pay, you will probably have to explain that to a court. A court may determine that you accepted a lower paying job because you voluntarily impoverished yourself to avoid paying child support or to try to receive more child support, or to avoid paying higher spousal support or to try to receive more spousal support. If any of those are true, the court can impute income to you, meaning, the court can use income from your higher paying job to calculate the obligation(s) or can use an income amount that the court thinks you can “potentially” make. Potential income is based on using several factors, such as, your employment and earnings history, job skills, age, health, the local job market, etc.
3. Get Good Advice – Proper and independent advice from experienced financial and legal professionals may save you far more down the road than the fees you pay.
Legal professionals are often needed in order to resolve conflicts. Our attorneys at The Harris Law Firm are highly skilled and will provide you with enough information so that you can make educated decisions about your case. As one of the most important issues for people going through a divorce is money, perhaps the most important issues in a case involving children are what impact the case will have on your children. One of the best pieces of advice an attorney can give to a parent is to do what’s in the best interest of your children. Not only is that the standard that the court uses in determining parental responsibilities (custody), but if you do what’s in the best interest of your children, it can help facilitate effective coparenting and decrease any potential for conflict. If parties to any type of case can avoid as much conflict as possible, then not only can legal fees be reduced because the case is not highly litigious, but you may also be able to resolve your case sooner by agreeing on the issues and signing a separation agreement that the court can incorporate into your divorce decree.
In addition to obtaining a competent legal professional for your case, you may also want to consult a financial advisor. As there are several types to choose from, it’s important to know which one is best for you. Here are a few types of financial advisors: 1) financial planners (they help plan your future with regards to investments, savings, budgeting, etc.), 2) investment advisors (they help choose your securities (stocks and bonds) and manage them for you),
3) wealth managers (they are like financial planners, but they also assist with philanthropic planning and estate planning), and 4) accountants (they can analyze financial statements and conduct audits). Again, those are just a few examples, so it is important to consult with an attorney prior to hiring one.
4. Don’t Get Personal – Listen to your unbiased advisers, treat family law negotiations as business situations, be flexible, avoid emotional fights or positions that a wise opponent could use to your disadvantage.
Often divorces can be emotional, but if you are not able to control your emotions and you make rash decisions based on your emotions, then you will only prolong the process and possibly end up with the very opposite of what you wanted out of the divorce. If you are able to remain objective, trust your lawyer, and even participate in mediation, then you will be able to make the right decisions for you that will affect the rest of your life. As going through a divorce is a very personal process, you must remember that we as your legal professionals are on your side and are trying to obtain the best possible outcome for you. If you let your legal professionals and other advisors support you through the process, then you will find that the process is not so daunting and that your spouse will not be able to take advantage of any weaknesses that you may have.
5. Get Valuations – Many times, people walk away from many thousands by assuming they know the value of items like real estate, retirement plans, stock options. These may be worth far more than what you expect, or what a summary statement shows.
There are many types of expert valuators and if you do not get property correctly valued, you may end up with a lot less marital property than you should have. As Colorado divides marital property equitably, not equally, it is important to be able to prove how much you contributed to the value of the property and, of course, you cannot determine the value without valuing it. Here are a few types of expert valuators: 1) an appraiser (determines the value of your home or any other real property that you may own), 2) a business valuation expert (determines the value of a business, 3) an accountant or a digital forensic expert (analyzes financial records), and 4) an actuarial (values pensions). Again, those are just a few examples, so it is important to consult with an attorney prior to hiring one.
6. Get All Marital Businesses Evaluated – Trained financial professionals are adept at making sure that business value is properly accounted for, especially if your spouse runs the business.
As mentioned above, a business valuation expert can determine the value of a business and because there is more than one way to value a business, it is important to determine which method is best for you. Business valuations may include analyzing the company’s capital structure, future earnings prospects, market value of its assets, liquidation value, etc. But no matter what method is used to value the business, it is important to remember what was explained above regarding documents that are required to be filed with the court. Colorado not only requires that you file a personal financial statement, but also requires that all business financial statements prepared during the last three fiscal years and any periodic financial statements from the last 2 years be filed as well. That filing requirement not only assists you with obtaining an accurate business valuation, but it also assists the court in making its decision as to what value it will actually assign to the business.
7. Update Your Estate Plan – Make sure your assets and future assets are preferred for your retirement and your kids.
Prior to filing for divorce is when you need to update your estate plan (a will or a trust) because if a divorce is already pending, you are essentially prohibited from doing so. Recall what is explained above under #2: once you file for divorce and the other patty is served with the required documents, an automatic injunction goes into effect and neither party is allowed to transfer, encumber, conceal, or in any way dispose of, without the consent of the other party or an order of the court, any marital property, except in the usual course of business or for the necessities of life. So, it is important to review your estate plan periodically, not only because of the automatic injunction, but also because throughout the years assets can be dissipated and accumulated and you need to account for both of those in your estate plan. Conversely, after a divorce, if a divorce settlement requires you to have life insurance on one another, requires you to sell a property, etc. then your estate plan needs to be updated to reflect those changes.
8. Remember that Furniture & Household Goods Have Value – Too many people quickly concede or agree under pressure to divide these potentially high-ticket items without considering value on both sides. This goes for both “marital” and “separate” property, both of which are relevant in a divorce.
Valuation of personal property, furniture, and household goods is based upon a current “fair market value”, meaning how much you could reasonably sell an item for at the present date. But keep in mind that items such as couches and televisions generally depreciate so are worth only a nominal amount if you’ve had them for a few years. Those types of items should generally be agreed upon outside of the courtroom so that you are not paying your attorney, experts, and mediators hundreds of dollars to divide up a $50 television and a $100 couch. However, items such as antiques, artwork, jewelry, guns, etc. are items that you would probably want to have valued by an expert and have your attorney involved in the process. If your spouse does not allow you to have access to those items so that you can value them, your attorney can file a motion to allow you to gain access.
You may not think that certain household or personal items can make that much of a difference in a divorce, but there have been cases where such items were deemed marital property, had a value over thousands of dollars, and the spouse that took the time to value the items received his/her equitable share. Conversely, your spouse may have separate property that is valued over thousands of dollars and the court will take that into consideration as well in determining things such as spousal maintenance (alimony). Keep in mind that marital property is any property acquired by either spouse subsequent to the marriage except for property: 1) acquired by gift, bequest, devise, or descent, 2) acquired in exchange for property acquired prior to the marriage or in exchange for property acquired by gift, bequest, devise, or descent, 3) acquired by a spouse after a decree of legal separation, 4) excluded by valid agreement of the parties.
9. Think About Insurance – Ask your legal and financial professionals about securing against future unknowns, such as your spouse’s death or disability.
A lot of people are not aware of the fact that in a Colorado divorce proceeding where spousal support is ordered, a court will also order that the payor spouse obtain and maintain life insurance on his/her own life. That is because if the payor dies prior to the spousal support obligation ending, then the other person will still receive sufficient money. Typically, the policy is for term and the payee is named as the beneficiary.
Another instance where life insurance may be ordered is when there is a child support order. If one parent dies prior to the children turning 19 years old, then the children will still be taken care of financially if they were named as beneficiaries of the insurance.
It may also be important to think about what would happen should you become disabled and not able to pay your child support and/or spousal support. You may want to look into disability insurance to ensure that your obligations get paid or you may have to defend yourself in court against a contempt filing for failure to pay child support and/or alimony.
10. Don’t Lose Sight of the “Big Picture” – A fair divorce allows for a fair and “equitable” division of everything at the time of the divorce, but one should also be thinking about one’s long-term financial security, including how to pay for kids’ college, securing adequate child support, and maintenance, obtaining a reasonable payout on any joint business your spouse will keep, etc. Too many people settle quickly either under pressure or because they don’t want to “fight.” Remember, this is about not just today, but many years into the future. Divorce settlements are incredibly difficult to undo down the road.
As stated above in #4: often divorces can be emotional, but if you are not able to control your emotions and you make rash decisions based on your emotions, then you will only prolong the process and possibly end up with the very opposite of what you wanted out of the divorce. If that happens and you try to modify your divorce settlement, you may find it to be more difficult than you had planned. There are certain rules that must be adhered to and certain time frames that often limit your ability to modify the settlement. Post decree modifications can only be done if you can prove that there was 1) mistake, inadvertence, surprise, or excusable neglect (i.e., both parties used an erroneous value for an asset or failed to include an asset in the division), 2) fraud, misrepresentation, or other misconduct of an adverse party, or 3) any other reason justifying relief from the operation of the judgment (this third option is rarely used because this option is often interpreted by case law to only be used in extraordinary circumstances that are not covered under the first two options).
Now that you know what you didn’t know about the top 10 ways to protect your money in a divorce, we hope that you reach out to us for a consult as we have many highly skilled attorneys who not only care about your well-being, but also can provide creative solutions that will benefit your situation. Please contact us today for a consult at 303-622-5502.