Mellody's Math: Plan for Divorce
N E W Y O R K, Jan. 18, 2002 -- Approximately four of every 10 marriages today end in divorce. Women tend to lose financially, and men tend to lose time with their children.
Everyone should keep death and divorce in mind even if married. Here are some ways to protect yourself:
Keep a financial identity separate from your spouse, more specifically, a credit card in your own name. Also make sure you have your own bank account.
Be aware of the household finances and investments. Ignorance will cost you. Look at all the accounts you have, track monthly and annual expenses, insurance costs, and the cost of up-keeping your house. Separate necessary expenses versus cosmetic. You'll know to put money aside in case the furnace explodes and that you may need to repair the driveway every five years.
Consider a comprehensive prenuptial agreement that protects YOU and your pre-marital assets. This is especially important for a second marriage if you want to protect assets for your children.
A pre-nup can be more palatable when tied into estate planning. (Everyone should have a will, powers of attorney and property and it's time to re-name your beneficiary for your IRA and life insurance.) Do not give things up in advance, but make a claim to marital assets in advance. Even if a lot of money is not involved, you should consider this. Remember that you can revisit the prenuptial with a post-nuptial agreement that loosens terms.
Make sure to put away your own IRA each year. Don't make household improvements or spend money on a vacation without having contributed to your IRA.
If you leave work to care for your kids, roll over any IRA and 401(k) money you have into an IRA — don't spend it assuming your spouse's retirement funds will support you.
Maintain your skills. Take computer courses, volunteer, keep yourself marketable should you ever find yourself in a position where you either have to or want to go back to work. Have your own financial advisor and your own lawyer separate from your spouse.
Keep non-marital assets separate. This includes assets owned prior to the marriage; property you inherit; gifts to one party rather than the family. This allows "tracing" of non-marital assets. Remember that marital debt is JOINT no matter who does the spending, so be sure to check in with your spouse.
Money is a primary cause of divorce. Make sure you and your intended have a discussion prior to getting married about how/if you are going to pool your money, how it will be budgeted, spent and used to build wealth over time. Do you have similar ideas about financial goals? Conflicts during discussion are foreboding of issues that may come up later.
Consider seeing pre-marital financial advisor. (Incidentally, a lot of marriage therapists end up sending their clients to financial advisors as money is the last taboo and causes many conflicts.) "Yours, Mine and Ours" system can help you have a feeling of private ownership and security, allow for discretionally things you don't have to report to your spouse about and also help you not feel bitter about paying bills, etc.
Know the financial situation of your future spouse. Be aware of any debts. Share financial information so you know what you are getting into.
Time your marriage to minimize taxes. It forces you to pay more taxes as a couple than single if you're employed. If you can wait until January to get married, consider postponing your June wedding for a winter wedding.
Mellody Hobson, president of Ariel Capital Management in Chicago, is GoodMorning America's personal finance expert. Click here to visit her Web site, ArielMutual Funds.com. Ariel associates Matthew Yale and Anne Roche contributedto this report.