How To Protect Yourself Before You Get Married In The Event Of Divorce

2.5 million weddings took place in 2022 in the US – the most since 1984 – probably due to the fact that celebrations all over the nation were cancelled in 2020 and 2021 on account of the lockdown.

As a financial advisor, I am all for it. While I am certainly no expert on how to meet the love of your life, I can assure you that there are many financial benefits to marriage, and it is widely accepted as fact that married people tend to be more financially stable than the singles out there. Marriage also seems to be a key ingredient to a longer lifespan, consistent companionship and of course, overall happiness!

However, behind every divorce filing is a story of two people who were at one point happy (enough) together that they tied the knot. Divorce is unfortunately a very real part of some relationships’ evolution. While you often cannot predict (or prevent) this part of the marriage journey, there are a few pieces of advice on the front end that could be very useful on the back end. Here’s a look at how to set yourself up for financial success in the event of divorce – before you ever say “I do.”

Keep your records. “Let me give you advice that could wind up being very useful at some point. Super simple stuff that people just don’t think about on the front end that might save some heartache on the back end, and will definitely save some divorce fees,” says Alexandra Peais, Forensic Accountant at Gursey Schneider in San Francisco, CA. Alex has extensive experience in the area of family law, and has counseled many of her clients through a variety of dissolution issues. “Keep all your tax returns, bank and brokerage statements, and real estate documents including deeds, purchase/refinance documents and mortgage statements,” Alex suggests. “If you need to prove or disprove separate property in the event of a divorce, not having the documents to support your claims will make it very difficult to prove your case.”

All property is characterized during a divorce. This means that lawyers and experts determine what the marital estate consists of by looking at the date the assets were acquired and then determining whether they are community/marital, separate, or a combination of the two depending on a variety of factors including the source of funds used for the purchase. Tax returns are critical to this effort and the IRS has limitations on the period of retention of these records, as does your bank or brokerage firm. Saving your statements and tax documents to an electronic file as you receive them is the best way to ensure that they will be there when (er, if) you ever need them. The longer the marriage, the harder it will be to track down all of these documents so make sure you are saving them along the way.

Forensic tracing, which is what has to happen if you and your soon-to-be ex-spouse disagree on what assets are separate instead of community and don’t have the proof at your fingertips, is a terribly expensive process that can be very financially draining, especially if you don’t have all the information and documents available.

“I wish I had a chance to tell all my girlfriends a few things before they walked down the aisle, it sure could have saved a lot of time and money for those who found themselves single again.” Alexandra Peais, Partner at Gursey Schneider.

Open new accounts when you get married, and start depositing all of your earnings here. This piece of advice is a great follow-on to what you just read about keeping your records. If you simply open joint accounts as soon as you are married and deposit all of your community funds into these new joint accounts, your separate accounts cleanly stay separate and forensic tracing won’t be required later on down the line so long as you don’t make any transfers from the community accounts to your separate accounts during marriage.

“You can always withdraw money from your ‘separate’ accounts and spend it on the ‘community’ if you want,” Alex reminds us. “Pooling your marital earnings in a joint account does not mean that is the only money available to you if you want to buy something, or take a nice vacation. You can still use the funds in your separate account, you just have to understand how the characterization could change if you do any commingling of funds.” Once funds are commingled during a marriage, a forensic tracing analysis will most likely be required to re-characterize them as separate assets if you ever want to make that claim in the event of a divorce.

Consult with family law professionals regarding estate planning. Estate planning is all about HOW you own your assets, and is intended to preserve the maximum amount of wealth possible for the beneficiaries of your estate. Creating trust(s) is a vehicle frequently used by estate planners in order to accomplish this goal. However, provisions in various trust agreements can have an impact on the separate and community property characterization of assets contributed to these trusts in the event of divorce. Consulting with a family law professional when you are in the process of estate planning can help you understand the potential effect of your estate plan upon divorce so you are not surprised later down the road.

“I have had several cases where the parties purchased real estate and placed title in the name of a joint revocable trust,” says Alex. “It is very common for joint revocable trusts to have provisions stating that all separate property assets contributed to the trust retain their character as separate property and vice versa for community assets. If the real estate was purchased with separate property funds, it is likely that a trial court will characterize the real estate as separate property upon divorce. It is very confusing for some spouses to hear this when they were under the impression the asset was community property because it was held through a joint trust.” Understanding the ramifications of what an estate plan could mean when you get divorced is an important part of the education process to protect yourself financially.

Keep track of your expenses. It is good for everyone (whether married or single) to have an understanding of their spending and budget. This becomes especially crucial in the unfortunate event of a divorce. It can be very unnerving for a spouse who was not in charge of the finances during marriage to suddenly be on their own without any clue of what their income or expenses have been and will continue to be post-divorce. While there are professionals you can engage to assist you with this process (including wealth advisors and forensic accountants), it is a very empowering thing to have good handle on this ahead of time. If you have the resources, engaging a bookkeeper to keep track of your expenses in Quickbooks or a similar software is a great way to stay educated regarding your finances during marriage. This also becomes very useful in the divorce process and can save you a lot of time and fees to have this information readily available.

Stay in the Know. Think about this for just a second – Even if you and your spouse decide that one of you will be in charge of the finances and “manage that department” on behalf of you and your family, it is important to still discuss your progress together and any potential issues that could threaten your financial well-being as a couple.

The two of you are essentially running a company together. Your company makes money, spends money, maybe has some debt to manage and most certainly has some kind of objective in mind for the future. Inside a company, the different managers all speak to each other. The same should apply to your partnership in a marriage. Review the documents that you are asked to sign – tax returns, trust documents, deeds, etc. Ask questions and have a general knowledge of household expenses, how much money is in different accounts, and where your assets are held. Major decisions should be discussed and agreed upon rather than unilateral. Open communication and collaboration are key ingredients for any successful company (or marriage).