How to Protect Your Assets in a Divorce

Co-authored by Clinton M. Sandvick, JD, PhD

Updated: March 29, 2019

Part One of Three:
Acting Quickly But Wisely

  1. 1
    Hire an experienced divorce attorney. Find an attorney experienced in divorce or family law in your area. Ask friends or family for recommendations or research reviews of different attorneys online to find one that fits your needs. Ideally, an attorney should direct you toward a mediation rather than court proceedings, as these usually work out better for everyone involved.[1]
  2. 2
    Learn about your state's divorce laws. State divorce laws are all different and nuanced, but can broadly be split up into two major categories: community property and equitable distribution. Community property states include Texas, California, and eight other states. In these states, marital property is divided right down the middle. This includes assets earned or purchased during the marriage and all shared account balances. Equitable distribution states, however, divide property based on "fairness," which might include financial and non-financial contributions to the marriage.
    • Equitable distribution divorces, by definition, are less cut and dry than community property states. This means that having a good lawyer on your side can be even more beneficial.[2]
    • Assets acquired before a marriage, but combined in joint accounts, still count as marital property and will be divided.[3]
  3. 3
    File for legal separation. Many states have a legal process by which you and your spouse can formally separate. In states that offer this legal process (e.g., California), you will have to file a petition with your local court and ask a judge to grant the separation.[4] If granted, you and your spouse will be able to live separately while still maintaining your legal status of "married".
    • Filing for legal separation can also help you protect your assets. Before a legal separation will be granted, you and your spouse must divide your property. If you and your spouse cannot agree on property distribution, the court will make divisions for you.
    • In some states, once a legal separation is granted, any property acquired by either spouse after that will be considered separate property. Therefore, in these states, the sooner you separate, the easier it will be to keep track of, and separate assets, during the divorce process.[5]
  4. 4
    Immediately split up your accounts. Divorce is a very trying time for both spouses, and this may lead one or both to compensate for the loss by ramping up spending on a shared credit card. This leaves both spouses responsible for half of the bill. Avoid this situation by immediately closing or freezing all shared accounts. You should also open new credit and checking accounts in your own name as soon as possible. This is especially important for those that may not have their own credit history.
    • You should also split up car insurance and other insurance policies.[6]
  5. 5
    Don't attempt to hide your assets. It may be tempting to avoid disclosing certain financial assets to your spouse or the court during divorce proceedings, but doing so is a crime that can lead to jail time. During the process of "discovery," in which marital and personal assets are located and totaled, you will be forced to submit information for all of your assets. If you fail to do so, you may be held in contempt of court. At this point you will be forced to turn over information regarding the assets and/or charged with a crime. Make sure to faithfully disclose all assets at the start to avoid these difficulties.[7]
  6. 6
    Consider hiring a Certified Divorce Financial Analyst (CDFA). A CDFA is specially trained in valuing and dividing marital assets, including difficult cases like retirement accounts, stock options, and divorce settlements. Your attorney or financial planner might have CDFA credentials, so check with them first. However, you can also hire an outside CDFA. This will help ensure that all assets are properly treated.[8]
  7. 7
    Make copies of all of your shared financial information. Work with your lawyer to identify all shared and individual financial assets owned by you and your spouse and any debts you both owe. Find account statements, credit card bills, tax returns, and debt statements and make copies for your records. Double-check your work to make sure that nothing is left out.[9]
    • You should place these records in a secure location or give them to your lawyer for safekeeping.[10]
    • Make sure to also look into pensions or retirement plans from previous employers. This asset is commonly missed in the divorce process.[11]
  8. 8
    Gather health insurance information. Make sure you have your health insurance ID number and health insurance card so that you can continue to have medical coverage through the divorce. This is especially important if you are on a health insurance plan provided by your spouse's employer.[12]
  9. 9
    Inventory your shared valuables. Valuables include any non-financial shared assets outside of shared properties or primary vehicles. For example, vehicles like motorcycles, RVs, boats, or antique cars are shared valuables. Other items include collections, firearms, antiques, art, and jewelry. Record any items that are family heirlooms, as these can be considered non-marital property. List and photograph all shared valuables. If necessary, obtain professional appraisals for any items that you disagree on price-wise.[13]

Part Two of Three:
Separating Your Assets

  1. 1
    Divide retirements accounts. Retirement accounts, like 401(k)s, IRAs, and 403(b)s, are still divided in divorce proceedings. How exactly they are divided depends on your state's laws. Community property states will likely divide the retirement account(s) 50-50, whereas equitable distribution states will divide them according to contribution. The divisions are stated in the divorce decree and in an official document known as a QDRO.[14]
  2. 2
    Change beneficiary designations on life insurance policies. Life insurance policies are usually one of the biggest assets a person has. With a life insurance policy, when you die, your named beneficiary will get the cash payout from the policy. When you are married, your life insurance beneficiary will most likely be your spouse. In fact, state law requires spouses to sign a waiver before you can choose a different beneficiary.
    • Before you get divorced, ask your spouse to sign a waiver so you can choose another beneficiary.
    • Upon your divorce becoming official, if you have not already been able to change the beneficiary, go to your insurance provider and ask to fill out a new beneficiary designation form. You can usually change your beneficiary at any time. Once you have filled out the form, make sure it is filed correctly so your new designation supersedes your old one.[15]
  3. 3
    Take taxes into account. Assets that appear to be monetarily equal may be taxed differently. For example, due to income taxes, $100,000 in home equity is not worth the same as $100,000 held in an IRA. The IRA would be taxed, resulting in a lower payout for whichever spouse got that "equal" part. Discuss potential tax liabilities with your attorney or CDFA.[16]
  4. 4
    Determine how to handle valuables. In many cases, valuables will have a personal value to one or both spouses. Make an effort to leave your emotions out of it and go with whatever value the appraiser gives on an asset. If a valuable is disputed between you two and you can't make an agreement, sell it and split the money.[17]
  5. 5
    Deal with mutual debt obligations. Creditors still need their payments on time, even as you are going through the hassle of a divorce. Make sure to coordinate with your spouse, and your respective lawyers, to make sure that bills like rent, mortgage payments, car payments, and utilities are still paid on time. In some cases, it may make sense to just sell the assets that you own together, unless a different agreement can be reached.[18]

Part Three of Three:
Protecting Your Assets Before Marriage

  1. 1
    Sign a prenuptial agreement. Prenuptial agreements are the best way to ensure that, if you divorce, your assets are fully protected from any action taken by your spouse. Specifically, they are contracts signed before marriage that specify how property will be treated in the event of a divorce. The prenuptial agreement specifies the ownership and treatment of any income, properties, and heirlooms after a divorce. It can also include other provisions about responsibilities during and after the marriage. Work with an attorney to draft and sign your prenuptial agreement.
    • Prenuptial agreements generally must be "fair." For example, you can't specify that one spouse is to get nothing in the event of a divorce.[19]
    • Prenuptial agreements are valid in both community property and equitable distribution states.[20]
  2. 2
    Keep non-marital assets separate. Non-marital assets are those assets that are owned by only one spouse. These include inheritances and money owned before marriage. However, they are only non-marital assets if the money is kept in a separate account under the name of the person who owns it (rather than a joint account with their spouse). The same goes for properties. If a spouse is added to the deed of a property that you own before marriage, you are legally giving your spouse half of that property.
    • In order to keep property as a non-marital asset, you must also maintain that property with money from a personal, non-joint account.[21]
  3. 3
    Maintain account information from the date of your marriage. Retirement accounts can be considered non-marital property, but only at the value that they held when you got married. Some states may allow you to only divide the portion deposited and earned after you got married, leaving you with what you had beforehand. However, to prove this value, you will need an account statement from the date of your marriage.[22]
  4. 4
    Obtain a valuation for your business. In addition, business equity is handled differently. If you are a small business owner when you get married, you may be able to only divide the appreciated part of your business in the event of a divorce. That is, if your business was worth $500,000 when you got married and $1,000,000 now, you would only split the $500,000 in appreciation. To prove this, you will need to have your business professionally valued at or before the date of your marriage.[23]
  5. 5
    Update your agreement as needed. Even if you have a validly executed prenuptial agreement, it may not cover every situation you run into during marriage. One of the major complicating factors involves moving from one state to another. This is the case because some states are separate property states (a.k.a., common law states or equitable distribution states) while others are community property states. If you move from a state that follows common law (e.g., Iowa) to a community property state (e.g., California), the assets and property you acquire after your move may be owned differently than you are used to. When you make moves in life, look back at your prenuptial agreement and make changes where necessary.
    • For example, if you own a house in Iowa, that home could possibly be owned by one spouse alone. However, if you move to California and buy a home while married, that home could be considered community property, which means it would be owned equally by both spouses. If your prenuptial agreement doesn't anticipate these issues, you could find yourself in a difficult spot when you divorce.

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  • The advice in this article is not intended to serve as legal counsel. You should hire an attorney to guide you through the divorce process.
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About this article

Former Civil Litigator
4 votes - 100%
Co-authors: 11
Updated: March 29, 2019
Views: 2,629

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