Dividing Assets in a Divorce
Few times of crisis require immediate, clear-headed financial thinking like a divorce. From the time of the split to the signing of the settlement, both parties will face making those decisions in a whole new context – alone and with a potential adversary. Even in the most amicable split, the decisions about who gets what come with a mountain of emotional baggage.
Knowledge, as Sir Francis Bacon wrote in the 16th century, is power, so arm yourself by gathering every scrap of information on your finances. Request your credit report – you are entitled to one free copy a year from the three major reporting agencies – to check what you and your spouse owe. Open individual bank, credit card and brokerage accounts. Close all joint accounts – a sometimes tricky task if those accounts are sizable. Your attorney can help make sure you get your share of liquid assets.
At some point, one or both of you will leave the family home. This can be the most agonizing split because of the emotional bonds the home represents. Women often want to keep the house, perhaps to spare children from a disruptive move or because they perceive it to be the most valuable asset the couple owns. But that also means keeping the mortgage payment, home owner’s insurance, property taxes, utilities and upkeep – all on one salary instead of two.
During a time of turbulent emotions, it’s essential to rely on your personal team of financial services professionals and get first-hand information. Along with your divorce attorney, your team may include an accountant, financial professional and possibly an insurance agent. This team will review your financial situation and make recommendations on possible courses of action. If you’re paying by the hour, don’t use these people for emotional support – call a friend instead.
A new budget can help head off the “splurge to purge” temptation. You need extra TLC, but find ways that don’t cost money. Get used to your new reality of running a household on one salary, and avoid the pitfall of using credit now thinking you can pay it off with your settlement money.
If your assets as a couple include investments, a business or items like antiques or collectibles, you’ll need a clear view of their value as well as any hidden costs. For example, you may pay taxes on capital gains when you sell stocks, and those gains can vary depending on the purchase price, or cost basis. You may need the help of an investment professional, appraiser or forensic accountant to ensure that what appears equitable on paper will be fair when the settlement is finalized and later when assets are liquidated.
There’s no single best way to split assets during a divorce. Your best defense is to be informed about your assets and liabilities and to select a team of professionals to help you weigh the pros and cons of different options for splitting those assets and liabilities. Take a long-term view of self preservation, not a short-term view of punishment or least conflict. Once the divorce has been settled, you won’t get a chance to ask the judge to reconsider if you find you’ve made the wrong choices.