How to (Financially) Survive a Divorce

How to separate from your spouse, not your money

The only thing more heated and emotional than talking about divorce is talking about how to protect your assets in a divorce. Let me come clean so you know where I’m coming from, or maybe more accurately, not coming from.

I’m not going to show you how to take advantage of an unsuspecting spouse or get out of child support. My goal is to share with you a few strategies that have been used for decades to protect the assets that come into a marriage.

If you have money and want to protect it if you get married and then divorced, this lesson is for you. Period.

And many people assume these strategies are only used by rich guys and their new young wives. Not so. More and more women are implementing the ideas I’m going to share with you to protect themselves. A good friend of mine went through a divorce and is now on the hook for her ex-husband’s credit card debt and student loans. Think about that. She now is on the hook for over $100k of debt that her ex-husband hid from her and she had no part of. If you have money and want to protect it if you get married and then divorced, this lesson is for you. Period.

Okay, now that I’ve given you that disclaimer, let’s get into it.

Divorce and family law is incredibly complex and each state has their own quirky rules, but here’s the good news.

We can be near-experts at protecting your money from divorce by only knowing three things:

1. Co-habitation Agreement. A client once joked, “The best way to protect yourself from divorce is to never get married!” That’s funny, no? Unfortunately, it’s bad advice. His advice may protect you from many of the negative financial issues surrounding divorce, but even this extreme position won’t protect you from all of the problems. Why? Many states have cohabitation laws or recognize common law marriage. This means that if you just live with your partner and never get married, you may have some financial liability if you separate and they move out.

One way to protect yourself is to enter into a cohabitation agreement with your partner. A cohabitation agreement is a document that outlines how property, assets, and debt will be divided, as well as how financial support will be handled if you separate.

So, if you are going to move in with someone, or if you are already living with someone, and you want to protect your money if you separate, speak to a family law attorney about the financial risks you face if the relationship dissolves. Find out if a cohabitation agreement makes sense for you.

2. Prenuptial Agreement. Okay, still not married yet. A prenuptial agreement (often called a “pre-nup” or a pre- marital agreement) is an agreement you enter into before marriage that spells out who owns what, how income earned during the marriage will be treated, whether there will be spousal support, and other issues. Without a pre-nup, your ex-spouse can be entitled to a large portion of your money. The laws are tricky and different in each state, but if you have a properly drafted pre-nup, it can save you hundreds of thousands or millions of dollars in legal fees, spousal support, and assets.

Again, if you are interested in protecting your money from divorce, talk to a family law attorney.

3. Gifts/Inheritance. Okay, so whether you are married or not, or have a pre-nup or not, money that is gifted to you or money you receive from an inheritance may be protected in a divorce. Part of it depends on the state you live in, but many states consider the gift or inheritance to be separate property as opposed to marital property. This just means that it’s not part of the marital assets that get split up in a divorce, but instead, it’s your separate property. That’s the good news. But, you must keep the money or assets you get separate. That means you should open up a separate account in just your name. Don’t mix them up in your joint account. There are some other rules and things to know, but for this lesson, just try to remember that if you are going to get a gift or inheritance, you should talk to a family law attorney to see what you should do to protect those assets in a divorce.

Okay, that was a bit of a long lesson and a little technical, but now you are aware of the three things that can protect you in a divorce or separation: a co-habitation agreement, a prenuptial agreement, and how gifts and inheritance may be special if you keep them separate.

All right, enough with the depressing divorce lesson. Let’s move on to something much lighter and uplifting . . . getting sued! Yay!

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.