Emotions and wise money decisions rarely combine well. Nevertheless, there is no better opportunity for the two to clash than in a divorce. A divorce is a breeding ground of emotions, including grief, resentment, anger and guilt.
If you are susceptible to these or any other strong emotions, it may be a good idea to set them aside long enough to make smart decisions with your finances. It may be an even better idea to make some of those financial decisions long before a divorce is on your horizon.
A practical prelude to marriage
A recent study concluded that getting divorced results in a 75 percent reduction in a person’s wealth. That average could be even higher for you if you allow your emotions to cloud your judgment.
One sensible way to safeguard against making bad money decisions in an emotional storm is to plan ahead. While many interpret the suggestion of making a prenuptial agreement as a lack of confidence in the sincerity of a marriage, having a premarital contract is actually much more than a list of who gets what in a divorce.
The many benefits of a prenuptial agreement
Celebrities like Steven Spielberg, Michael Jordan, Tiger Woods and Mel Gibson all have more than talent and success in common. They all lost hundreds of millions of dollars in divorce settlements because they did not have prenuptial agreements. In fact, in addition to awarding Mel Gibson’s ex half of the star’s fortune, a judge ordered Gibson to pay her residuals from his future earnings.
You may not be in a situation like they were, but your circumstances may also benefit from a premarital contract. Some of the ways you can use a prenuptial agreement include:
- Designating inheritance assets for children from a previous relationship
- Keeping family heirlooms, real estate or businesses in your family after your death
- Designating beneficiaries for retirement benefits, investments and insurance policies
- Stipulating which of you will handle the bills, taxes, finances and spending decisions
- Protecting yourselves from each other’s individual debt
Every state, including Florida, has its own guidelines for what you can include in a premarital contract, and your attorney can clarify those for you. To ensure protection for the best interests of both you and your future spouse, each of you should have your own attorneys.
A calm, rational mind makes better decisions
If you have not taken advantage of a prenuptial agreement and your marriage is about to end, there are some things you can do to move forward from a position of control.
- Gather and organize important financial documents:
- Deeds and titles to properties
- Mortgage agreements
- Bank account information
- Documents regarding credit cards and other debt
- Several years’ worth of past tax returns
- Other documents your attorney may request
2. Make sure you have some cash on hand for a hotel room and living expenses.
3. Keep an emergency fund available in case you need to maintain bills on your own for a while.
4. Resist the urge to hide assets or spend money frivolously.
Taking the time to assemble these important items will put you in a good position if the divorce proceeds. Knowing where you stand financially will enable you and your attorney to determine how to negotiate a settlement successfully.
Whether you are facing a wedding or a divorce, calm preparation will be your best asset. Following your attorney’s advice will protect you from making emotional mistakes and ensure that you realize the best possible outcome for your circumstances.