How to Protect Your Assets in a Divorce


Divorce can take a toll on your emotions—and if you're not careful, it could take a toll on your assets, too.

If you haven’t taken any advance precautions, such as creating a prenuptial agreement, you may feel resigned to certain outcomes that could have a negative financial impact on your post-married life. However, there are actions you can take to try to separate assets fairly or remove yourself from unwarranted debt obligations.

(Keep in mind, laws differ state to state; some follow community property laws and others equitable distribution laws.)

Prove what’s yours is yours

The court likely considers all your property as joint property, but you may be allowed to preserve your right to an asset to which you have a separate property claim. This requires tracing the financial property back to its original source of separate property. For example, maybe you received an inheritance and used a portion of it to buy a home that you and your spouse lived in for years, and placed the remainder of the cash in your joint account. To prove that remaining portion of the inheritance is yours, the path of that money through the joint account would need to be traced starting from initial deposit onward. Be advised that this is a difficult task: You'll have to dig up detailed records of deposits and withdrawals to make a solid claim about how much of the remaining money is from the inheritance rather than the marital estate. 

Don’t get brought into credit card debt

If you and your partner are joint holders of a credit card account, it’s great if you can agree to pay off the card together and then close the account before the divorce is finalized. Couples separating on amicable terms shouldn't have a problem agreeing to that. But maybe your divorce doesn't fit that description. If you keep both names on an open account, and your partner fails to make his or her share of the payments, you bear the responsibility for the debt. If you’re only an authorized user of the card and not the account holder, ask your partner to remove you as a user or do it yourself. Only individual and joint account holders are responsible for the charges on credit cards.

Leave the house behind

Generally, there are some complications if you and your partner decide to sell your home before the divorce is finalized. But the benefits may outweigh some of the difficulties, such as disagreements over whether to accept an offer. In a community property state, your house is likely to be considered a shared asset, in which case profits will be split equitably between both you and your partner. Additionally, the sale provides a cushion for both you and your partner to manage other financial responsibilities.

Understand the business of business

Many issues can come up when two about-to-be exes are involved in a business in one way or another. Some tips: If you are both comfortable with and capable of continuing to maintain a company together in a 50-50 partnership after the divorce, or if one partner wants to stay involved in the other’s LLC business, do so – but do it wisely. Make sure each of you has clearly defined roles and functions to avoid trying to control each other's work. And consider putting in place an agreement for mediation or to allow an outside party to make decisions, just in case troubles come up. In the case of a 50-50 ownership where the spouses don't want to continue the business partnership, the company is marital property and its value divided between you. Also, experts say that even if your spouse owned a business before your marriage, if you supported the business or helped it grow during the marriage, you may reap the benefits of having a portion of the business’ assets being considered marital property.

Secure your retirement

Splitting up retirement assets brings the risk of incurring taxes and fees -- certainly something you want to avoid. How to best divvy up retirement assets will depend on the type of asset they are. Some plans, like a 401(k), potentially can be rolled over into your own accounts, tax-free and penalty-free. Some retirement assets even can be split and transferred without any taxation after the divorce is finalized -- within a specific time-frame.

You don’t need to hire a lawyer to handle your divorce, of course, but it’s rare not to have one as you separate your lives and finances. It’s also wise to bring a financial consultant into the picture early on so that you have a source to turn to in a time when you’ll be making complex financial decisions, as these will have a real impact on whether you will be able to turn to your new life feeling like your finances are well-protected or not. 

The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever.