How to Minimize Financial Exposure during Divorce
The emotional side of divorce is challenging enough – add financial complexity to that, and divorce quickly becomes overwhelming. However, protecting your financial exposure now can be vital to your post-divorce well-being and happiness. If you don’t take the appropriate steps, you risk missing out on a fair distribution of your marital assets, potentially putting yourself in the hole as you move on to your next stage of life.
What does “financial exposure” mean in divorce?
Financial exposure in divorce is the potential risk of loss you face during asset distribution. The more vulnerable you are to financial exposure, the greater your risk of financial loss.
Property division in divorce can lead to one spouse receiving an unequal share of the marital assets. While courts are required to follow laws and regulations that make property distribution as fair and equitable as possible, you may negotiate the terms of your own divorce. If your spouse uses an aggressive divorce lawyer, they may try to strong-arm you, resulting in an unfair distribution of your marital property.
It’s also possible that your spouse could be hiding assets from you. If you don’t know about certain assets, this could result in unequal distribution of your marital property … the ultimate financial exposure.
Tips for minimizing financial exposure
Complete financial disclosures
To minimize your financial exposure, don’t skip any steps in your divorce. One of the most important steps in any divorce is financial disclosure. In some cases, one spouse may try to persuade the other to skip this step – especially if they’re trying to hide assets. Don’t skip this step.
You and your spouse must complete financial disclosure forms and share them with each other or your legal advisor: This is the discovery process in divorce. You’re not required to file these forms with the court in most cases, but you are required to complete them accurately. Some states even require you to sign them under oath so that if you’re found to lie or misstate your finances, perjury comes into play.
Understand how assets can be “hidden”
What should you do if you think your spouse is hiding assets? Hopefully, this will never happen to you, but if it does, you need to understand how assets are often “hidden.”
Moving money: In the most common scenario, a spouse knows divorce is on the horizon and starts moving money. They may transfer money to a friend or even to a child, hoping their partner won’t notice. They may have their paychecks deposited into a different bank account. A person could do this by paying off a nonexistent “debt” that a friend claims to hold.
Using marital funds to purchase assets: A spouse might use marital funds to purchase assets after the divorce has begun. For example, they may suddenly have a new Italian sports car or an expensive painting. If assets are purchased with marital funds, you’re entitled to half of their value … but your spouse may claim they were purchased with non-marital funds.
Financial disclosure is vital to ensuring you get your fair share. Without it, you may not know where the money came from to purchase these items, and you could miss out on fair distribution.
It’s important to be honest in your financial disclosure, too. If a discrepancy exists between your disclosures, you may need to investigate more deeply. If you’re both found to be withholding assets, it could lead to legal troubles.
Hire a forensic accountant
If you think your spouse is hiding assets, hire a forensic accountant. Their job is to comb through your marital finances and find where the money is going. In some cases, people get creative. If your spouse owns a business, they may “hire” nonexistent employees, pay them, but divert the money to a new bank account they’ve set up. A forensic accountant can uncover these hidden assets, saving you losses in your marital distribution.
Trust your gut
Above all, trust your gut. If something doesn’t seem right or doesn’t add up, say something. If you have a lawyer, talk to them. If you don’t, speak with a legal advocate who can advise you on what to do next.
Many divorcing couples just want their divorce to be over so they can move on. While that’s understandable, you’re better off working now to uncover any hidden assets instead of waiting months or years to try to recover your fair share.
Financial disclosure is a crucial step in minimizing your financial exposure – your risk – but the documents are complex and time-consuming. Not only must you provide all the required details, but you must also compile and review lots of your own financial information in the process. If this feels overwhelming, consider spending an hour with a certified divorce financial planner (CDFA) through Hello Divorce. We’ve helped lots of people in your position make the most of their property division and marriage settlement, and we can help you, too.
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