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- For Love & Money is a biweekly column from Insider answering your relationship and money questions.
- This week, a reader is worried about losing the money they've been saving in a divorce.
- Our columnist walks through the steps that determine how assets are split in a divorce.
- Got a question for our columnist? Write to For Love & Money using this Google form.
Dear For Love & Money,
My husband and I got married young, at 18 and 19. We've both worked hard and advanced in our careers over the last ten years. I started a 401(k) when I was 21 and had a job that offered one. He had equal opportunities at his jobs but declined.
I've encouraged him every year or so to get one started, but he hasn't, always stating he'll get to it eventually. I'm now 28, and my 401(k) balance has almost over $20,000 in it. When I met with a CFP, it was projected to be over $2 million by the time I am 67 years old.
The last few years have been hard in our marriage, and he sometimes says he's considering a no-fault divorce. I worry he'd try to take half of my retirement savings. What do you think?
Sincerely,
Worried About What's Next
Dear Worried,
First off, thank you so much for sharing your story with me. In a world where social media shows us only couples apparently experiencing idyllic marriages right up until they release their PR-perfect divorce statement, it feels a lot safer to pretend that your relationship is flawless too. I can't tell you how much I admire you for recognizing that you may be nearing the end, and not only being willing to talk about it, but also being willing to prepare yourself.
Being honest with yourself is one of the best ways to prepare for anything. While divorce is considered one of the most stressful life events, it's also often the best solution to a whole litany of problems that occur when two people decide forever isn't in the cards. I want to encourage you not to be afraid of it. You will survive this. You are only 28. You have nearly 40 years left to spend working towards your financial goals.
I knew if anyone had advice for how to protect oneself in the face of an impending divorce, it would be Kathy Costas. Costas is a vice president at EP Wealth Advisors, a Certified Divorce Financial Analyst, and the author of "Your Amazing Itty Bitty Divorce Handbook," a great resource for anyone who needs to become divorce-literate as quickly as possible.
When I read Costas your letter, she explained that understanding the probable division of your assets is a three-tiered flow chart.
On the first tier is the question of which assets are inarguably yours and which assets will be up for grabs in a divorce. Costas said that gifts and inheritances that haven't been earned aren't eligible for division, while any asset that has been earned is eligible, even if it's under your name.
Once you know which assets will be on the table in a divorce, the next step on the flow chart is to determine whether you live in an equitable division state or a community property state. Costas explains that if you are in an equitable division state, a judge will decide on a fair division of your assets. In a community property state, your assets will be divided equally, regardless of whose name is on what and who saved how much money.
Costas said that if you are in an equitable division state, there is a good chance, based on the story you shared in your letter, that you won't be asked to fork over half of your 401(k). But if you live in a community property state, your husband will be entitled to half.
The third tier of Costas' flow chart is also based on your state. Is your state a fault or no-fault state? You mentioned in your letter that your husband has specifically threatened a "no-fault" divorce, but according to Costas, it isn't up to him. If you live in a no-fault state, outside of criminal factors, it won't matter whether one partner cheated or left. If you live in a fault state with equitable division, a judge will factor any evidence of misconduct submitted to the court into their ruling. But if you are in a community property state, the flow chart will still end on a 50/50 division of assets.
Another option Costas and I discussed was throwing out the flow chart and hiring a mediator. Costas said mediation can be a great option for couples who are more interested in keeping things straightforward and amicable than they are about making sure things are fair. This is because, as Costas explained, it's a mediator's job to help you reach an agreement, and it isn't their problem whether or not that agreement is fair.
Costas cautioned that couples who try mediation often end up going to court anyway when mediation fails. But if you and your husband are honest with one another and share enough trust, mediation can be an excellent option.
Beyond what state you live in, method of dividing assets that you choose, or even if your husband's threats of divorce turn out to be nothing more than words said in the heat of an argument, Costas says having as much information as possible is key to protecting yourself.
She suggests checking your credit report to make sure you have a comprehensive picture of your financial position and consulting with a few lawyers. This may cost some money, but the peace of mind it will offer will be well worth the price.
And if, due to your early marriage, you don't have an individual credit history, Costas suggests you begin building credit now. This is as simple as getting a personal bank account, and getting a card in your name that you pay off at the end of every month.
Divorce can be rough, and if it isn't something you want, I hope you can avoid it. But if, deep down, you know it's the only path forward, I hope you are brave enough to take it.
Rooting for you,
For Love & Money