Summer is for weddings, not divorces. But since approximately 10% of marriages fail during the first five years, and 25% don't make it to their 10th anniversary, (according to the U.S. Census Bureau), couples should be proactive and do some financial planning in advance just in case married life is short-lived.
If you are getting married soon, here are 3 simple steps you can take now to protect yourself financially if you face a future divorce. If your marriage works out, these strategies are smart fiscal practices that will benefit you and your family throughout the years.
1. Discuss Debt/Credit
Healthy discussions around money, expectations, debt and credit should take place well before your wedding day. Since couples are waiting until they are older to get married, chances are they have a credit history, for better or for worse. Review your credit reports together and decide how existing debt is to be handled. Not all debt is considered equal. If one person has student loans but the other has high revolving credit card balances, a discussion on spending habits and financial responsibility would be smart.
Establish and maintain credit in your own name once you are married. If you end up divorced, it could be easier to qualify for a mortgage or credit line if your ex's credit is separate from yours. Closely monitor your credit reports as part of your annual financial planning review to make sure that the information is current and correct. It could take months to remove an incorrect statement and you may need your spouse's cooperation.
2. Protect Premarital Assets
Dividing assets can be tricky when couples split. Protect the assets you bring to the marriage by making copies of all bank, retirement, and brokerage statements, dated before your wedding day. In order to be considered your property in the event of divorce, the assets must be kept separate and not commingled with marital assets. If you place assets in the "yours, mine, and ours" category, you save a lot of time and money upon your split.
3. Create and Review Your Financial Plan
Work together to put your financial goals on paper and review it annually. To avoid unpleasant surprises upon a divorce, couples should both stay involved in the family finances and monitor budgets, accounts, and investments regularly. When you have children, obtain a 30 year term life insurance on each parent's lives, especially if one stays home. Term insurance is inexpensive, the annual premium never changes, and a term of 30 years is typically enough to cover the cost of child care, housekeeping, college, and even a wedding. If you divorce, you would both be covered at a time when your age or medical condition could preclude you from qualifying for life insurance or paying a higher premium.
Summer is for love, but good financial planning is best always in season!
Gabrielle Clemens, JD, LLM, CDFA is a lawyer with a master's in taxation. She is a Vice President of Investments at UBS Financial Services in Boston and works regularly with divorcing individuals and their attorneys, mediators and collaborative teams to provide clarity on the critical financial issues that arises before, during and after divorce. She's been featured on CNN, Fox Business News, BusinessWeek, Bloomberg TV and Radio, and Huffington Post and has written extensively for the American Journal of Family Law.