Financial Tips in Anticipation of Divorce

Originally published in the 422 Business Adviser, and written by Kristen Doleva-Lecher

By: Kristen Doleva-Lecher
September 28, 2015

Many factors can determine whether a particular person will obtain a relatively good or relatively poor financial outcome after a divorce.  Not all of these factors are in people’s control. Good planning, however, can certainly help make life easier if divorce is being considered.

Clients often ask about “legal separation” from their spouses. Pennsylvania does not recognize “legal separation” per se but does place importance on the parties’ “date of separation.” The date of separation is important because it marks the end of what is considered marital property — the time period of joint marital assets and debt. This date is a key factor in determining the parties’ assets and debts.

Lawyers often disagree about the precise date of separation, and it is not always easy to determine. Sometimes it is easy to pinpoint, such as when one of the parties moves out and files for divorce. Sometimes, however, it is harder to assess, such as when the parties remain living in the same home but separate their finances and no longer share bank accounts or pay bills together. Of course, some couples stay married for years and never share bank accounts and always pay separate bills. Each case must be evaluated individually.

The splitting of assets and debts in Pennsylvania is determined by an Equitable Distribution model versus a Community Property model. A Community Property model of distributing martial assets and debts simply assumes that property acquired during the marriage will be split 50/50, while the Equitable Distribution model does not assume a 50/50 split but rather a distribution based on what is equitable or fair, taking into account a number of guidelines.

Perhaps the most important advice for a person contemplating divorce is to immediately make a budget. The transition from a double income household or to having to sustain two independent lifestyles on one income is often overwhelming. A monthly budget can be a very useful tool and can also give peace of mind.

If separation has actually occurred, it may be appropriate to immediately file for child support, spousal support, or alimony pendente lite. It is important to keep in mind that support can only be paid once a party files for it; the responsibility of the payor to pay support through the Domestic Relations Office does not begin until the date of filing a support complaint. Most counties in Southeast Pennsylvania will schedule a hearing about one month from the date of filing the complaint for support. Support recipients should be cognizant that support is temporary and should not assume that payments will be made indefinitely. Support, like equitable distribution, depends on a number of variable factors. Especially in today’s economy, what was once a stable income might suddenly change without notice.

It is wise to run a credit report to determine if there are any unknown debts in your name. It is not unheard of for spouses to obtain credit cards and even loans in the name of the other spouse without him or her knowing. Upon divorce, it is best to cancel joint credit cards immediately. While the responsibility for the debt may be allocated during the divorce process and referenced in a Settlement Agreement or the finding of a Divorce Master or Judge, the parties cannot bind the creditor if the obligation is owed by both parties. In other words, just because a divorce agreement indicates that one spouse is liable for a joint debt, a creditor may attempt to collect against both parties if the account becomes delinquent. If your ex-spouse takes the responsibility for paying the joint debt it is a good idea to request continuing card statements to ensure that payments are being made and your credit is being safeguarded.

In a situation where a client believes he or she may someday file for divorce but is not sure when that might be, an option to consider is to stop contributions to a 401(k) or other retirement plan. Until the date of separation, then any assets accumulated during the marriage are marital property subject to equitable distribution. The growth of the 401(k), a marital asset, is itself an asset also subject to equitable distribution. Ceasing contributions enables the cash to be used for personal expenses, vacations, and the like, effectively decreasing the marital estate at the expense of losing out on the time value of potential tax-deferred growth.

Many people today are staying together and living in the same home due to poor real estate values. Home values have significantly decreased and in many cases there is simply no equity in the home. The decision to remain in the home and continue to pay a mortgage with the likelihood that it will take significant time to see any return is a personal choice; however, given an impending divorce, one person need not bear that burden alone. A Settlement Agreement can distribute the loss of the home between the parties, or can provide for a later sale or refinancing once the market recovers, or can seek to indemnify a party who has vacated the house and is no longer paying on the mortgage.

Like most legal issues, divorce can be a daunting process. It can be draining financially and emotionally. Consultation with an experienced family law attorney is wise. If proper steps are taken from the beginning of the process, including a basic legal education in one’s rights and obligations, the whole process can be made considerably less painful.


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