Divorce isn't just emotionally wrenching, it can be financially disastrous for both husband and wife.
And in marriages where one spouse has worked and the other hasn't, the ramifications are steeper, especially in regard to retirement savings.
"It's very different for a dual wage-earning couple versus a couple with a single wage-earner," says Lili Vasileff, a Certified Financial Planner and president of the Association of Divorce Financial Planners. "There's a huge disparity. The person who's been working can generate savings and have the possibility of having them matched by an employer. The nonworking spouse needs liquidity. They're not thinking down the road."
The upshot: It's not uncommon for wives to get the house while husbands keep retirement benefits. But that division of assets can prove to be a big problem, says Amy Whitlatch, a Certified Divorce Financial Analyst in Cincinnati. "Will you have the cash flow to stay in the house after you divorce? It's often much better to sell the house and divide the proceeds and retirement funds so both parties walk away with a nest egg and cash," she says.
Facing divorce? Protect your assets.
8 ways to protect your assets
- Establish your own credit and close joint accounts.
- Beware of mutual debt.
- Hire someone who's smart about money.
- Don't raid retirement funds to pay for a divorce.
- Gather all financial and retirement documents.
- Know how divorce affects Social Security benefits.
- Get smart about retirement plans.
- Protect your survivor benefits.
1. Establish your own credit and close joint accounts.Once you're divorced you'll no longer be dependent on a spouse for your financial well-being, so your personal credit history is more important than ever. If you don't have one, get a credit card in your name. Open a personal savings account. The longer you can establish a personal track record of good money habits, the more easily you'll be able to rent or buy a new home, get loans, even get a job. What's more, having a solid financial record can help offset any damage done to your credit history by a spouse who ran up debts.
Both spouses are responsible for shared debt, so the last thing you want is to leave something like a credit card account open if you're not the only one controlling how it's used. For that reason, you'll want to close them as early as possible. If you're unable to pay off the balance, the card can't be closed but you can request that it be made inactive. Once you file for divorce, you can't change bank accounts without the permission of your spouse or his or her attorney, though you can withdraw money. Once such accounts are closed, be sure to obtain final statements for your records.
2. Beware of mutual debt.Check your credit report. It will clearly spell out lingering debts that you may not be aware of. That's important. Even if you blame your spouse for running up bills, you'll still be partly responsible for paying them off.
That said, debt can be used "as a bargaining tool for other benefits," says Cindy Hounsell, executive director of the Women's Institute for a Secure Retirement. "If someone went skiing with buddies in Aspen and spent $15,000, you can start negotiating so you don't assume half of that."
On the other hand, if you've used a personal credit card to pay for essentials like the kids' tuition or groceries, you can negotiate for your spouse to assume shared responsibility.
3. Hire someone who's smart about money.Having a legal whiz on your team is great. But you'll need help from someone who has in-depth financial expertise, too. Here's why: Before retirement assets can be split, they need to be valued. And that's frequently not an easy thing to do. How do you put a price on things like stock options that aren't vested? What are the real costs of a divorce agreement?
A Certified Divorce Financial Analyst can help. They specialize in assessing long-term financial impacts of divorce settlements and have in-depth knowledge of how assets such as retirement plans are structured and what must be done to properly value and divide them.
An attorney, financial planner or court mediator may have CDFA credentials. If your lawyer doesn't have this extra training, it may be worth the expense to hire another financial pro to help analyze the financial impact of your settlement before anyone signs on the dotted line. To find one near you, check the Institute for Divorce Financial Analysts' Web site.