- To start off, I would consult with a lawyer and see what you can do to protect your assets even before filing for divorce to come up with a strategy. Usually, when divorce starts, it is harder for an attorney to get documents and start to subpoena documents in demand, unless a client has access to the documents at home. Before you move out, make copies of all financial documents as far back as possible, and strategize with your lawyer prior to moving out on how to get those documents quicker. Subpoenas are of course possible if you cannot retrieve the document yourself. The only problem with subpoenas is that you may be unable to retrieve all the information you need. For example, banks don't hold bank accounts open for more than seven years. So, if you have in your possession 10 years’ worth of accounts and account statements, that could be helpful in some situations. For example, if you're claiming some separate property, money you put into a down payment or something else eight years ago, having these documents will be helpful. So, the most important way to protect your assets is to come up with a strategy before filing for divorce.
- Next, protect your retirement accounts. This means protecting not only your account, but also your spouses. It’s possible your spouse might use their account for attorney's fees during the marriage or after filing for divorce. Sometimes it's important to freeze those retirement accounts. There is a general rule that if the petitioner files for dissolution of marriage, then there is an automatic restraining order on certain assets that goes into effect with the filing of the petition and service of the petition to the respondent. This restraint ensures that money cannot be easily moved unless it's for attorney's fees or a regular expenditure. However, it is possible to join different retirement accounts or to start a QDRO (qualified domestic relationship order), where the accounts can be divided and rolled over. This process, unfortunately, can take a long time, sometimes up to six months. We have to hire a third party to prepare the QDRO, and the court has to approve it. Then we send the QDRO to the to the bank or institution that holds the retirement account, and they roll over to the other spouse's account.
- It is also important to know the difference between taxable and non-taxable assets in order to protect yours. You might look at all accounts and think, “well I will just keep our cash and my spouse can keep the retirement accounts” but remember, taxable accounts are approximately 30 to 39% less valuable if you cash them out now, than regular checking and savings accounts. This is because retirement accounts are tax deferred and there is a tax penalty for early distribution, you also have to pay taxes in general to take out money from these accounts, unless you roll over. The cash value of a retirement account is not the same as the cash value of a checking account.
Lastly, avoid unnecessary expenses. Some people think, “if I spend so much money before filing for divorce then it will look like I am used to this lifestyle, then I can request spousal support and receive more money accordingly.” However, this is not going to be helpful because the court looks at lifestyle and calculates long-term support by looking back three to five years, not by looking at recent purchases. If you do spend an unnecessary amount, the other party may be able to argue that you increased the debt and therefore violated a fiduciary duty towards them. The other party may ask that you take liability for the unnecessary expenditures that go beyond the usual lifestyle.
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