When you say “I do” you think it’s forever but statistically you know less than half of us end up staying together. In fact, chances are – as a BA50 – you already have a group of friends who are divorced. Or thinking about it. Or that person might be you. In fact, did you know that there’s even seasonality to divorce? According to Divorce Lawyer and sage Jacalyn Barnett, this time of year (the New Year) seems to be the number one time to consider separating as is September when the kids leave for school.
Which is why BA50 Publisher Felice Shapiro went to Jaci to get the skinny on what BA50’s need to know. Specifically, we asked her what are the top five “must do’s” for BA50 – whatever the state of her union. It’s an exercise worth exploring even if all is well at home. What follows is a Q&A sit-down. Consider it your free session before taking the leap.
Felice: What are the top five ways to prepare yourself if you are thinking of getting divorced?
Jaci: Number one: Gather all of your family’s financial records. This means what your family OWNS: How the property is held –in your name, your spouse’s, in a trust or in some other form or fashion.
It is stunning to me is that many people have no idea as to how their family’s property is held. All joint titles are not alike. There are various ways in which an asset can be jointly held and the manner in which it is done can have a serious implications. The manner can affect your ability to sell it or to borrow against it or your spouse’s ability to do so with or without your consent. Gathering this information when you are in crisis is not only the most expensive way to do this, but the most emotionally exhausting. Your records should always be organized and available to you before you think you will need them.
Every BA50 needs to realize that sooner or later you or your partner could die or leave. This information is essential in all scenarios.
This reality leads me to the next most important point – Understand fully what you or your spouse Owes!
Felice: That could be endless – what are the critical categories around “what you owe?”
Jaci: Any actual or potential obligation must be considered. Thus, in addition to mortgages, home equity loan, credit card debt, you need to determine whether there are any outstanding tax liabilities on a tax return – joint or married filing separately. A great first step is to order your credit report. Not only will it identify what obligations you have, but your credit score can impact your ability to borrow and the rate at which you can do so.
How you accrue these obligations is an essential component of the investigation. You need to follow the money – where are your assets being used? Check for one of the three C’s: Cash, Charge or Check. Gather all records of these expenses over an extended period of time, at least three years. The longer time span affords you an opportunity to have a more valid perspective. If your marriage suddenly implodes you will most likely be faced with the issue of support — either asking for it or paying it.
Felice: What’s one of the biggest mistakes women make?
Jaci: For me, number one is deciding with their hearts rather than their heads. All too often women will insist on retaining their home for the sake of continuity, but it is essential to ask yourself, is that what you would do with that value of funds if you had to make that purchase decision again today? A house exhausts assets, it does not create assets. In the present market, it is not as easy to dispose of a home, if you need to have liquidity on short notice.
Felice: How do I know if I can afford to maintain my home?
Jaci: Always consult with professionals to understand the financial consequences both before and after taxes of ownership of your home. Check your insurance coverage. Can you maintain the property if you or your spouse were to become disability or incapacitated? What if the property suffered damage? Be aware that the values of assets as insured are not only of significance if something happens to the asset, but potentially in determining its value in a divorce. You want to be sure that if the house is damaged or destroyed that you have the right amount of insurance coverage and the records to show what basis of the value. This should be reassessed periodically.
BA50: What else do I need to know?
Jaci: Long-term care has been long forgotten by some of us and it is a huge mistake. If you or your spouse suffers a catastrophic illness, you could not only lose much of your health but you could lose much of your net worth. Since women statistically outlive men, it is a more critical concern for us because we need to have the coverage not only to care for our loved ones, but ourselves. This is especially true with a second or third marriage: You need to consider what insurance coverage is available to you if your spouse dies or if either of you is seriously ill. It reminds me of carbon monoxide, a quiet killer in the night of a peaceful existence.
Felice: What if they signed a pre-nup saying they are giving you half of their assets upon death?
Jaci: That is such a great question. I never understand how someone finds security in that statement, half of what at an unknown date. So many things can happen in the intervening period of time. Your spouse could give away their assets or gamble them away or be compelled to exhaust them because they did not have the long term care insurance we just discussed. A realistic way to address this problem is to make sure that you have sufficient insurance, life and long term care, so that you can have some piece of mind. Once you say I do, there are no guarantees, you are the one who potentially could be the guarantor and yet ironically you cannot plan on your spouse taking care of you.
Because of divorce laws, which vary across the country, I also recommend you pull together your records to establish what assets you have that have existed since your marriage, or what was acquired by gift or inheritance during the marriage or by a personal injury award.
Trace the money. You may well need to show how each asset was acquired, maintained and transformed. Let’s say you owned an apartment in New York City prior to your marriage and you never did anything to alter its value during the marriage. If you can prove those facts, you have a good chance of retaining it all. But if during the marriage you had renovated it and those improvements changed the value of the property, not merely market conditions, then the appreciation in value is subject to sharing in a divorce even if though you never changed title to the property.
Felice: All good stuff. Anything other words of wisdom?
Jaci: I think you need to be a conscious earner and spender. I think if you sleep walk through your life financially, you will be more likely to be faced with a nightmare. Pay attention to the changes in your relationships – at work and at home. Pay attention to the changes in your spending patterns and your spouse’s spending patterns. Knowledge is power.
Felice: Thank you so much for your guidance. You’ve inspired me to encourage our readers to give a new spin on a New Year’s Gift.
Note to all BA50’s: If you love your partner create a list of all your assets and liabilities — each year, all bank accounts, how much you have. Update records of all your finances. Even if you aren’t the working spouse you need to know. This is loving – creates peace of mind not to mention trust.
Jaci: Peace of mind is the most important piece you want to acquire in this New Year.