It’s no secret that 2020 was a stressful year for many. With social outlets few and far between, relationships of all kinds were put to the test, especially for those living together. In some cases, the stress of social distancing, shut down measures, and financial concerns amongst the backdrop of a pandemic were simply too much to overcome. Divorce is on the rise around the world. While we hope that love lasts a lifetime, it’s important to consider how a divorce could affect your financial security and future as well as any dependents.
- Prenuptial Agreement
A Prenuptial Agreement (prenup) is your first line of defense in case of a divorce; it’s a legal document that you and your spouse sign prior to marriage to set forth terms for property rights during the marriage. It can be used for many purposes such as protecting assets, shielding a spouse from the other’s debts, and determining financial responsibilities throughout the marriage. Common aspects of a prenup include agreeing who would get what in the event of a divorce, providing for children from previous relationships, and protecting any assets owned prior to the marriage. There are only a few things that prenups can’t cover, such as child support and custody (these are decided in court), waiving rights to alimony, and anything personal that isn’t directly related to finances. If you feel a prenup is right for your relationship, consult with an attorney to have one established before the wedding. If you’re already legally married, a postnup is a similar agreement but entered into during the marriage instead of before.
- Establish a Trust
When it comes to protecting assets from a divorce, a trust is an effective option. This type of legal entity can be set up as either revocable or irrevocable and might be useful for a variety of purposes: identifying and providing for specific beneficiaries, restricting the conditions as to when and for what purpose beneficiaries receive assets, protecting assets from misuse, especially in the case of addiction, and providing for beneficiaries with disabilities, just to name a few. Depending on how you structure the trust, it can even provide protection from debt. If any creditors are trying to collect payment, assets can be placed in an irrevocable trust where you essentially give up ownership and they are considered outside of your estate. Trusts can be an important component of any estate plan, especially if you have accumulated significant assets and/or have complex beneficiaries.
- Limited Liability Company
If you’re wanting to protect a family or personal business from a potential divorce, a Limited Liability Company (LLC) is an option, but certain steps need to be taken to ensure an ex-spouse doesn’t end up having rights to the company. Ideally, the business should be incorporated prior to marriage and you’ll need to make sure that you don’t use marital funds to pay any company expenses. Opening separate business and personal bank accounts can help maintain this separation and track spending in case it was ever questioned during a divorce proceeding. You’ll also want to keep your spouse from working at the business or helping with it in any capacity. The more involved your spouse is in running the business, the more likely they’ll be entitled to a share of it, and the percentage to which they have a right often depends on how much work they did for the company. If you have business partners, your spouse would only have potential rights to a piece of your share of the company.
- Quick Tips
Is your relationship imploding as we speak? Here’s what you should do immediately if you think a divorce is imminent.
First, get organized: determine what’s yours, what’s your spouse’s, and what you own together. Make a list of property, mortgages, bank accounts, investment and retirement accounts, outstanding debt, important assets such as vehicles, etc. Next, make sure you have physical copies of all financial and legal documents in a safe place. Electronic copies are a good backup, but don’t rely on
them as you can easily be locked out of computers and online accounts. Think of bank statements, investment statements, mortgage and property documents, and anything important you’ve signed over the years.
Then, be sure you have some cash on hand and if you don’t have one already, set up a bank account that only you have access to and make sure it has enough funds to cover a few months of bills and living expenses.
After that, research the laws in your state so you have an idea of how assets and debts could be split in a divorce. Knowledge is not only power but also protection. Annual trends show that divorce rates increase in January, peak in March before simmering down over the summer, spiking again in August and then decreasing over the holiday season. If you see divorce on the horizon, it’s a wise idea to start building your team; consult with a family law attorney and financial advisor to get ready for what is to come. Every state has different laws regarding how marital assets are treated during a divorce, so these professionals can help you understand how divorces work where you live and guide you towards coming out of a divorce with the assets you need to maintain your standard of living and care for any dependents.