Protecting your assets in a divorce means taking the steps necessary to ensure your money, property, and investments remain safe and are equally divided. Divorce will often change your financial life in many ways, but with advanced planning, you can minimize stress and protect what is important to you.
Connecticut is a famous state in the United States, which is known for its culinary diversity. Here, divorce cases are very common. Divorce in Connecticut and other states will likely have several complex financial aspects to deal with. Most people do not understand how quickly their assets can be commingled, which makes it more difficult in the future to separate them. For this reason, working with a Connecticut legal specialist for divorce cases is essential.
Why Protecting Assets Is Important in Divorce
Divorce not only ends a marriage; it may also reduce wealth, and in some cases, negatively impact retirement savings, or place a person’s ownership interest in a business in jeopardy. Many people face financial challenges simply because they failed to prepare in advance. If thought out properly, protective planning can make the process far more seamless and prevent one partner from receiving an undue share of an asset.
Common Assets Impacted by Divorce
Almost any type of property can be divided in a divorce. However, the most common property impacted is as follows:
- The family home
- Joint checking/savings accounts
- Retirement accounts such as 401(k)s and pensions
- A business or investments
- Cars, jewelry, and other personal property
Understanding the assets that may be divided will help you plan appropriately and gather your documentation.
Marital Property vs. Separate Property
Courts look at two types of property: marital property and separate property. Marital property is any property acquired or earned during the marriage, for example, a residence or jointly held savings. Separate property consists of things that you owned before you were married, inheritances, and gifts made to you alone.
Problems frequently arise after the separation when separate property is commingled with marital property. For example, if you received some inheritance money and deposited that money into a joint account, that money may no longer be separate property.
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Legal Tools to Protect Your Interests
Several legal tools can protect your financial interests before or during the marriage:
- Prenuptial Agreements – Written before the marriage and set out the parties’ understanding of how their assets may be divided if a divorce happens.
- Postnuptial Agreements – Written after the marriage and set out the parties’ understanding of how their assets may be divided if a divorce happens.
- Trusts – Trusts may protect specific property (e.g., family-owned business, family-owned property) from being included in a property settlement related to the divorce.
Talking about these things may seem weird, but they are practical tools to try to avoid disputes down the road.
What You Can Do to Protect Your Financial Interests?
You can also take practical steps to protect your finances during the marriage or while the divorce is pending:
- Open individual accounts for each person’s earnings.
- Keep documentation of the ownership of all separate property.
- Keep documentation of the income and expenses related to your household.
Protecting Business Interests in a Divorce
Divorce is stressful for all parties involved, especially business owners. To reduce risk:
- Keep your personal finances and business finances separate.
- Pay yourself a reasonable salary to lessen ambiguity and disputes.
- Have a professional buy-sell agreement with business partners.
- Get a business valuation done the moment you decide to separate.
Otherwise, with poor planning, you may have to operate or sell your business to divest the assets.
How Are Retirement Accounts and Investments Divided?
Retirement accounts are usually one of the most valuable assets being divided in a divorce. Many courts like to utilize a Qualified Domestic Relations Order (QDRO) to divide retirement savings accounts such as 401(k)’s or pensions. With a QDRO, retirement savings can be divided without a tax penalty.
Investments are likely to be split down the middle, such as an IRA or a brokerage account. If you do not file a QDRO correctly, and/or if an application for a transfer of an asset, one or both of you could pay a tremendous amount of taxes or penalties if they are not accurately filed.
This illustrates the importance of adequately documenting everything and making sure that all filings are done correctly and promptly.
