What to Know About Money and Divorce

Divorce is a brutal experience. At a time when your heart is aching, it is hard to think through all the steps you need to deal with.

And while the divorce rate is dropping in the U.S., experts say that around 40% of marriages still end up being dissolved.

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So what happens to your hard-earned money and other assets in a divorce?

What Happens to Your Assets in a Divorce?

No divorce is really pleasant, but things are usually much less complicated when there are no children in the picture. Here’s what the money part of divorce looks like with and without kids. Keep in mind that every state is different when it comes to divorce, so the advice will be too, but this is generally how it goes.

If There Are No Kids Involved

Some separating couples are able to make the best of a bad situation by having what’s sometimes called an “amicable” or “civil” divorce.

“The marital estate consists of whatever debts, investments, real estate, cars, and other assets were acquired from the date you got married until the date of separation,” Washington says. “The divorce will decide how that’s all separated.”

If you can agree on how everything should be split, he says, you can draft your own agreement. Or, if you just know the bullet points, you can have your attorneys draft the agreement for you.

"It's always best — if you want to protect your assets — to see if you can agree with the other party involved," Washington says. "Then the agreement can be approved instead of litigated in court."

When You Can’t Agree on How to Split the Assets

If there’s disagreement on how to split your assets, the first thing you have to look at is the source of those assets — how and when you got them. If it’s something that both parties acquired together, it’s a shared asset and it’s subject to what’s called “equitable division.”

But even shared assets aren’t always split evenly, Washington says.

“When it comes to equitable division, in most cases judges will start at a 50/50 split. Then they’ll look at the conduct of the parties to determine whether to adjust that to something like 70/30 or 65/35.”

In order to protect yourself, you have to make sure you know where the assets came from. If it’s an independent asset to a party, it’s not typically subject to that split.

The key, says Washington, is that “you need to make sure that you can show that it is separate and apart from the assets you’ve had as a family. For example, if you bought a house by yourself before you got married and took out a loan on that house with your spouse after you got married, it could be argued that part of that house is now a marital asset.”

In many places, there’s also what’s called the “source of funds” rule, which could apply to things like a 401(k).

“If I have a client that I’m representing and they got married in 1990, but my client started working at a company in 1985, my argument as an attorney is that any money that was invested in a retirement account from 1985 to 1990 and whatever growth there was from 1990 forward on that money is just my client’s,” Washington says. “Anything after that is subject to equitable division.”

Alimony

Aside from the splitting of existing assets, there is also the question of alimony.

“If one party makes significantly more than the other party, that could be basis for alimony for the person that makes less money,” Washington says.

For example: If your partner makes twice what you make, then the judge can make a determination about how much your partner has to pay you until you can get back on your feet. Generally, that’s about one year of alimony for every two years of marriage, according to Washington.

If There Are Kids Involved

Of course, things get more complicated when there are children involved. There is the matter of custody — where the child is going to go and for what period of time — but also of child support.

“The parents are going to have to pay child support to any minor child and that’s based on the child getting some of the assets of both parents,” Washington says. “If one parent makes $30,000 and the other parent makes $70,000, the child should get access to $100,000 in income.”

There’s supposed to be a great level of financial disclosure about what the parties are making when that child support calculation is made. Both parties will likely be asked to provide recent pay stubs and other relevant documents. That’s used to derive a monthly income figure for the parties.

This goes onto a worksheet, along with things like out-of-pocket medical costs, daycare, school, extracurricular activities and any other big expenses, he says. These things may reduce one party’s income, which would increase what the other party has to pay. The worksheet determines the amount that the person paying child support has to pay.

According to Washington, whichever parent has primary custody of the child, their income is considered a given. It’s also important to note that custody will affect the marital estate. Judges are generally going to let the marital home be where the child resides.

“That means the non-custodial parent has to pay child support,” he says. “If you want to protect yourself when the calculation for child support is made, you want to have greater than standard visitation. That will impact how much you have to pay out in child support.”

Final Thought

Hopefully, you’re not reading this because you’re going through a divorce or considering one. But if you are, it’s important to understand how divorce works when it comes to your finances. A good attorney will help guide you through the process and you can help them by making sure you have a good handle on your financial situation.

“A full accounting of all of your assets — both marital and independent — is key if you want to make sure you protect yourself,” Washington says.