The division of assets and debts is often one of the most contentious parts of any divorce. Earlier this year, we published several blogs about some niche parts of the property division process, like transmuting community property into separate property.
Today, we're rounding out our advice with a property division checklist you can use to set yourself up for success in your property division case. Taking the right steps can help make property division less stressful and more cost-effective, enabling you to confidently navigate the process.
Common Property Division Mistakes (and How to Avoid Them)
Understanding common mistakes people make in the property division process can help you obtain a more favorable outcome in your case. Here are a few things you should avoid:
- Taking a short-term approach to property division. The outcome of your property division case can affect your financial stability for the rest of your life, so it's essential to think about things long-term. For example, many people try to retain the marital house during a divorce. But will that benefit you in 20 years? What's the real estate market in your area like? Could you make more money in the future if you sold the house and bought a property in another, trendier area? Will maintaining the home on a single income be too difficult? How's the mortgage? Will the house require expensive repairs? Make decisions for the future, as well as the present. If you're interested in learning more about the role of the marital home during a divorce, you can read this blog we wrote about just that.
- Underestimating your immediate post-divorce expenses. For many people, divorce involves moving to a new living space. That means a new down payment or deposit, and potentially new furnishings. You may also have to buy a new vehicle. You may have to obtain new health insurance. Start thinking about how you can liquidate assets to pay for future expenses and if there are any tax consequences. Post-divorce costs can rack up quickly, so having an accountant help you prepare a financial strategy for life post-divorce may be a good idea.
- Making decisions based on emotion. The division of assets and debts often involves property that you have an emotional attachment to, like that set of silverware you received from your best friends at your wedding. At some point, you need to decide what's feasible to maintain post-divorce, and what you should let go. If you're moving into a new apartment by yourself, do you really need both of the sofas you had in your home? Probably not. It might be hard to let go of assets you have an emotional attachment to, but you'll thank yourself later. Getting rid of things you can't use can also force you to get a fresh start, which can help you heal from the divorce.
- Not factoring in taxes. Unless you're a property division attorney or certified public accountant (CPA), you probably don't fully understand how taxes will impact your assets. For example, if you are awarded a portion of your spouse’s retirement account and want to cash it out, there will be tax consequences. Make sure you work with a financial professional who fully understands how your property division will affect you post-divorce to brace for the financial impact and avoid making costly mistakes.
With that all out of the way, let's go over some steps you can take to make the property division process easier.
Tip #1: Gather (and Make Copies of) Personal and Shared Financial Documents
You should consider opening up a separate bank account and getting a safety deposit box. In some counties in Texas, you can't sell, transfer, or tamper with any property during the property division process. However, you can, and should, make copies of important financial records (proof of income, tax returns, proof of benefits such as retirement accounts, mortgages, debts, receipts for expenses, etc.) and keep them on hand. It is also important that you obtain or make copies of statements for financial accounts you had prior to marriage as close to the date of marriage as possible to help trace what your separate property would be.
If your spouse tries to tamper with assets or accuse you of financially irresponsible behavior, having documentation of your income and expenses can be invaluable. Similarly, these documents can help you support your case in court.
Tip #2: Keep an Eye on Joint Bank Accounts
Many couples share a joint bank account. You should keep an eye on it during your divorce and make a note of any unusual expenses or transfers your spouse makes. If your spouse sells, transfers, or tampers with property during the property division case, they can be penalized, and you might be able to get a more favorable judgment from the court.
Additionally, if you notice your spouse engaging in secretive behavior like trying to hide bank statements or refusing to share financial information, bring it up with your attorney.
Tip #3: Figure Out What to Do About Assets Like Retirement Accounts
Benefits like 401ks can be tricky to handle during the property division process. To learn more about how a retirement account might impact your property division case, read our blog about it.
Tip #4: Inventory Everything
Take an inventory of absolutely every asset you can, from the dog to the house. Consider working with a financial professional, such as a CPA who specializes in asset valuation, to see how much all of your assets are worth.
It might sound like a lot of work, and it is, but cataloging all your assets allows you to do a few things:
- Figure out what you want from the property division. If you know everything that's on the table, you can figure out what's most valuable to you. You can also figure out what your spouse might want and then use that knowledge to arrange compromises so you can keep certain assets.
- Brace for the financial impact of your divorce. An experienced CPA and property division lawyer can work together to estimate how your property division case will impact you. That means you can start taking steps in advance to get ahead of the curve and optimize your spending.
Tip #5: Take the Time to Understand Community and Separate Property
In a divorce, community property gets divided, while spouses get to retain separate property. However, community property can be transmuted into separate property under certain circumstances (read this blog to learn more). Certain legally binding contracts, like prenups, can also change how community and separate property get defined during property division.
You should sit down with your lawyer and a financial professional to determine whether you can transmute any of your communal assets into separate assets to maximize your divorce settlement.
At Coker, Robb & Cannon, Family Lawyers, we help clients navigate the property division process with confidence.
To schedule a consultation with our office and learn more about how we can help you, contact us online or via phone at (940) 293-2313.