No one wants to think about their marriage ending badly in Divorce. But the reality is that it happens.
When it does, the question of how to safeguard your finances is a common concern. Fortunately, there are several precautions you can take to protect yourself financially in divorce.
Consider a binding financial agreement
Technically, you and your partner or spouse can enter a binding financial agreement before, during or after your marriage. But doing so before you get married is one of the easiest ways to protect your finances in divorce.
Also known as a prenuptial agreement or ‘prenup’, this is a formal agreement that is similar to a contract. In it, each of you states what you brought into the relationship and how the assets/liabilities should be divided in the event of separation and divorce.
As long as the binding financial agreement meets the requirements included in applicable laws, it doesn’t have to be reviewed or approved by the Family Court. In this context, it is also important to note that the court can’t change an agreement that complies with relevant requirements. However, the court can choose to disregard an agreement in certain circumstances.
On the other hand, not having a binding financial agreement at all puts your assets at risk for inclusion in the total asset pool and potential allocation to your former partner or spouse.
Although the extent of your contributions to this pool are given due consideration before it is divided, other mitigating factors may also come into play. These include but are not limited to how long you were together, how the marriage affected each of you, and your respective monetary/non-financial contributions to the marriage.
Obtain sound legal and financial advice
As we have just noted, it is not too late to enter into a binding financial agreement once you are married. However, it is important to get sound legal and financial advice before pursuing this option. There are two key reasons for this. The first is because it is legally required, and the second is because every situation is different and there may be other options worth considering.
In any case, don’t be afraid to be proactive. Consulting relevant professionals sooner rather than later can help alleviate any stress you’re already experiencing, giving you time to consider the advice and plan accordingly.
Maintain some financial independence
Devising a strategy that allows for some separation of assets is another way to protect yourself financially in the event of divorce. Some simple ways to maintain financial independence are to:
- Keep separate bank accounts;
- keep the deed of any property owned/purchased by one person prior to or during the relationship in that person’s name;
- establish a joint household/family account for living expenses and individual bank accounts for other, unrelated expenses.
However, you should never open a bank account or take any other steps in a deliberate attempt to conceal assets. You should also be aware that the existence or creation of an individual bank account won’t automatically guarantee that you can keep all the money in it. If the court determines your former partner or spouse has a right to it, the money will be distributed accordingly.
Careful documentation is key
The division of assets can be complicated when one or both of you receive gifts or inheritances prior to or during your relationship. Therefore, it is important to establish who received it and how the person who gifted it meant it to be used. In other words, was the gift given to only one person or to both of you as a couple? If someone gifted you money, did they instruct you to keep it for yourself, or use it for the family?
The answers to these questions will determine if you will be allowed to keep the asset(s) or if they will be included in the overall asset pool for allocation. Having proper, written documentation will substantiate your arguments about any assets that were given directly to you for personal rather than family use.
Careful documentation of joint and individual debt is also important when it comes to protecting your finances in a divorce. Unless you have proof that only one of you incurred a certain debt, all debt (joint and individual) will be divided in the property settlement. In other words, without proper documentation you may be responsible for paying off your former spouse or partner’s debt.
In any case, separation and divorce are never easy. But you don’t have to go through it alone. If you have questions about how to protect yourself financially, contact us today.