You know the old saying “timing is everything“? Well, that’s especially true when it comes to money in a divorce. Between attorney’s fees, the division of shared assets, spousal support (alimony), and child support – you’re already looking at a substantial shift in your financial landscape. If you’re not careful, you could be missing out on some timely maneuvers that could save (or earn) extra money in the split.
First and foremost – be VERY aware about the concepts of Date of Separation and the Date of Entry of Judgement. These are the two most important “bookends” of your divorce timeline – the start, and the finish.
Courts use the date of separation as an important factor in deciding issues related to property division, child support, alimony and (in some states) adultery. The specific definition varies from state to state, but typically it’s the date that spouses no longer live together as a married couple. The most obvious example of a separation is when one spouse moves out of the marital home with the intent of ending the relationship. Sometimes, however, spouses don’t immediately move out – for financial or strategic reasons.
The Date of Entry of Judgement is the date that a judge (the court) signs and stamps the final divorce decree in your divorce after your attorneys have gotten everything sorted out. It’s the final official nail in the coffin of your marriage.
Between those two dates, you need to be VERY careful about what you do with your money and assets.
- Small Business / Cash Considerations – do you own your own business? Guess what? Your spouse owns it also. If there’s net-positive cash value in that business, or substantial likely future value – think carefully about how safe that cash is sitting in the bank. Depending on which side of the coin you’re on, it may or may not be a good time for that business to generate a loss. Got debt? Think carefully before paying it off – that debt is used to calculate net present value, and you may want that value to be nice and low. Less value = less to split up. One spouse may view the business as an investment that they want to keep and nurture, while the other views it as little more than a cash piñata to crack open. Convert that cash into a valid (and fast depreciating) business investment and you might be able to both lower the net present value of the business, AND satisfy your goals of investing in it for the future.
- Stock / Stock Sales – If you hold stock, you know full well that the value of it fluctuates from day to day. That part is out of your control, but you CAN control the timing of buy or sell moves. Any stock you bought before the date of separation is considered joint property, and is fair game for division. But if the stock price plummets after the date of separation, look out – depending on the laws in your state, you still might be on the hook for the higher price it carried on the date of separation! If you believe the stock is going to drop, and you’re considering dumping it? Look before you leap…
- Spousal Support / Alimony – One of the biggest timing considerations is the overall length of your marriage. Laws vary from state to state, but in general there are different rules for a short term marriage (less than 10 years) compared to a long term marriage (10 years or longer). If you’re in a short term marriage, there will likely only be a few years’ worth of spousal support (alimony) on the table. But look out – if your marriage is 10 years or more (or getting close)? You might be talking about MUCH longer – potentially lifetime payments to the lower earning spouse. If you’re thinking about a divorce at the 5-7 year mark, the decision to either pull the trigger now vs. wait and see for a few years could make the difference between paying alimony for a few years, or the rest of your life. If you think your marriage is doomed, and you’re the higher earner – pull the trigger now. Or if you’re the lower earner, see if you can stretch things out to that magic 10 year marker. It can make the difference between a short term and a long term payout.
As always, check your local laws first. And consult with an attorney, accountant, or other professional. But arm yourself with the right financial knowledge before wading into a divorce. The financial implications can be staggering, and it pays to know the rules of timing.
How about you? Got any tips about how to time financial transactions during a divorce? Horror stories or advice? Leave a comment, we’d love to hear from you!