Have you ever worried about how a divorce will affect your finances? Or wondered if you could take legal actions to protect yourself from financial ruin? With the right advice and a reputable divorce lawyer, it is possible to protect assets in a divorce and come out of the challenging process with as little financial damage as possible.
It’s important to know that you shouldn’t hide your income or assets, nor do we recommend that you do anything illegal or dishonest. The Courts will look at what the parties owned as of the date of separation, with regard to dividing both assets and debts. Here's what you need to know to keep your divorce from turning into an asset-protection nightmare.
How Do You Protect Your Assets from Divorce?
When a marriage ends in divorce, assets must be divided. In North Carolina, this is called Equitable Distribution. But how do you protect your financial health in the process? Here are six things you need to know as you approach asset management during your divorce.
#1: Before You Head to Divorce Court, Pay Off Debt and Establish Credit
If divorce is in your future, start by paying off all your debts, including any debts incurred during the marriage, and establish credit in your name alone. This early strategy will make it easier for you to get approved for loans, leases, or credit cards in the future. This step will also assist you in the refinance process, if needed. It will also make it harder for your soon-to-be ex-spouse to access any additional funds or property through legal means after the divorce is final.
#2: Bank Balances on Date of Separation
The Court takes into account the value of accounts and assets and balances on debts on the date of separation. It is important to have accurate account balances as of the date of separation (or as close thereto as possible). This applies to the following assets:
Home equity lines of credit (HELOC)
Credit card statements
#3: Understand the Tax Implications of Assets or Liabilities and Divorce
Whether you're getting a divorce or not, the finer points of tax law can be difficult to understand. When you finalize your divorce, your tax designation will change. Divorce laws will help guide how assets are divided, but tax laws can be more complex. It is important to speak with an accountant or tax professional regarding tax issues. These factors can also have an impact on your tax implications:
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#4: Calculate Child Support Accurately
Child support payments can be a significant part of the divorce settlement, and it's important to calculate those payments accurately.
If both parents have incomes, the court will use a formula, the North Carolina Child Support Guidelines, that considers both parents' income levels to arrive at an appropriate amount for child support.
The court will also consider any other financial support obligations of one or both parents, such as children from previous relationships who are in the care of either parent, work-related child care, and insurance premiums for the children. If the parties jointly earn more than $30,000 annually, the Guidelines will not apply. In this case, it is important to document all expenses for the minor children.
#5: Open Separate Bank & Investment Accounts ASAP
To avoid being left without control over your money, open separate bank and investment accounts. This will allow each spouse to remain in control of their finances and ensure both parties have accurate statements of income and assets. In the event that one party attempts to take control of the other party’s finances, separate accounts will protect your financial security as you navigate the divorce process.
#6: Consider Opening a Revocable Trust or Living Trust to Protect Your Assets in a Divorce
Can a trust protect your assets in a divorce? In many cases, yes. Shifting assets into a revocable trust or living trust can help insulate your property from potential harm.
These trusts allow you to transfer ownership of assets into a separate legal entity that can only be used by someone after your death or if something happens to you due to mental incapacity. This way, your children or other heirs will inherit these assets without fighting over them.
#7: Work with a Trusted Divorce Attorney
A divorce attorney can help you navigate the steps necessary to protect your assets during and after your divorce, including alimony obligations. He or she will advise you on how to structure agreements with your spouse, clarify the legal framework for asset protection, and explain how these different tools can benefit you in the event of a divorce.
Have Questions About What Assets Are Protected in a Divorce?
Divorce is one of the most challenging life changes to navigate and endure, but it doesn't have to result in financial hardship. With the proper planning and advice, you can protect yourself and your loved ones from some of the worst financial parts of this process.
If you need help, contact a divorce attorney at Spidell Family Law. Our compassionate, experienced team is ready to guide you through the process and give you peace of mind.