Someone very close and dear to me is starting the divorce process. She lives in Wisconsin which is one of 9 current community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.)1 There are so many questions at this point in the game that I wanted to make a list of some things she should take into consideration as she journeys down this path:
- Understand what Marital property is, and what it isn’t. In general, marital property is everything that is acquired during marriage, as well as any appreciation or growth of separately-owned property. This includes real estate, investment property, cars, boats, furniture, or artwork, and any additions to and/or growth of, bank accounts, pensions, securities, and retirement accounts. For my friend’s situation, she had a 401k prior to the marriage of which she continued to contribute to during their 5-year marriage. For property division purposes ½ of all the contributions she made to her 401k during their marriage are considered his, as well as ½ the growth earned on the account during that time. It's also important to note that property can lose its “individual property” status if the asset gets comingled with marital property. For instance, if you inherited money from a deceased family member, that money is considered “individually owned property”. But if you put the inheritance into an account that was jointly owned it now is considered as marital property. This is similar for my friend, who had entered into the marriage with a home purchased in her name only. They lived together in the home where he paid her rent equivalent to ½ the mortgage. When they married they both continued to pay equally toward the mortgage and at one point the deed was changed to list both husband and wife as joint owners. It is likely that the home will be considered as marital property because of several factors, but mostly because of the joint titling on the deed. The good news is there are other factors that go into determining if an asset is a marital asset or not, which makes it so imperative that you have good counsel to help you with this process.
- Not just assets are split 50/50, but also debts. Because opposites often attract, my friend is a saver and her spouse was a spendthrift. I’ve seen this same scenario many times. The client with the debts gets half the saver’s money and the saver gets half the spender’s debts. In community property states (like Wisconsin), if the card originated during the marriage, you are responsible for 50% of the debt. Keep accurate records to ensure the debts don’t get larger during the divorce process. What’s more is, some states don’t take separation into account when splitting debts which makes the new debt get handled the same way it would if you weren’t separated until the divorce decree is final.
- Get working on the financials ASAP. I say this because I’ve often seen one spouse start to spend recklessly, or actively hide assets. The earlier you have assets accounted for the less room there is for shady behavior. It also helps you track the level of spending so you have a chance at catching if there’s been a “dissipation of assets”, which can lead to the court awarding a greater share of the marital property to the wronged spouse. In the case where funds have been hidden, know there are repercussions if they are caught, resulting in consequences such as jail time for lying under oath, or having to pay your attorney’s fees and/or a significant portion of the asset’s value. But as they say, “a penny of prevention is worth a pound of cure“.
- Do not be complacent, it’s your future you’re dealing with. Studies have shown that divorced women often experience a significant decline in their standard of living. Specifically, women over 50 have been shown to experience a 45% decline in their standard of living.1 This may be because they don’t want to fight for what they deserve. Don’t let this be you.
- Once the divorce is final, split the assets as soon as possible. I say this because I’ve recently seen two separate cases where clients who have been divorced for more than 10 years haven’t split their retirement accounts and it’s been much more challenging than was necessary. Both require additional fees be paid to split the assets and in one case, the spouse receiving the asset missed out on their portion of the growth from that time period because their agreement simply said to split half the account value as of the date of divorce without mention of any growth. This could mean a significant loss for the recipient and a gain for the transferring spouse.
- Get professional support whether it be from a divorce coach, a therapist, or both. No matter the circumstances of your divorce, it will be hard. There will be days when you’re paralyzed, fearful, or uncontrollably emotional. It can fully consume you, but it doesn’t have to be that way. Don’t be afraid to reach for professional support. They are trained to help you and to do it without judgement, which is exactly what you need when you’re this vulnerable. There is no reason you need to suffer through the process any more than necessary. So give yourself grace and find non-biased, professionally trained support. You’ll thank yourself later.
- Get your own lawyer, someone who will be non-judgmental and can advocate for you. Again, no matter the circumstance of the divorce, you need someone professionally trained to help advocate for you. Lawyers are trained to represent their clients and make sure their clients get what’s fair out of the process. This is not the same as going through mediation. Mediation is different altogether. I’ve recently had a client tell me they were going to use the same attorney as their soon-to-be ex-spouse where the attorney will “represent them both”. That’s NEVER the case. In fact, it can’t An attorney can either represent one side or no side. In mediation there is only one attorney, but they must remain neutral; they are simply there to guide you through the legal process of divorce. There is absolutely no advice given nor any advocacy efforts. Don’t short yourself on counsel, they’re trained to do this, but there are limitations.
The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner, or investment manager. Lincoln Financial Advisors Corp and its representatives do not offer tax or legal advice. Individuals should consult their tax or legal professionals regarding their specific circumstances.
1 Parker, Tim. Community Property State: What Is It, How it Works, State list. Investopedia.com. 21 June 2022.
2Tugend, Alina. ‘Gray Divorces’ Can Upend Your Retirement Plans. Kiplinger.com. 19 April 2023.