If you live in a place where divorce law requires all assets to be split equally (not all do, so don’t assume this), here is a brief explanation of exactly how that works. This post is for informational purposes only and does not constitute formal legal or financial advice.
Divorce is brutal for many reasons, a main one being that just as you are trying to process so many heavy emotions, you are also suddenly forced to figure out the money stuff.
ASSET EQUALIZATION EXPLAINED
Many countries, states and provinces use a “community property” or “asset equalization” method of splitting assets. In plain English, this is a legal way of making both people in the marriage walk away on fair and equal financial footing.
Ensuring that your equalization is completed fairly and thoroughly is crucial given that getting a divorce later in life carries a unique set of worries.
Why?
First, you simply have fewer working years left to rebuild your savings or recover from a financial loss so you must be vigilant.
Second, as a wife, there is a good chance that you took time out of the workforce to raise your children or care for your family. Or, because flexibility was required, you chose to “work from home” which was effectively working two full-time jobs simultaneously.
All of this means your personal retirement savings might look smaller than your ex’s. Equalization is there to protect you and acknowledge that your work at home is what allowed the family’s wealth to grow in the first place.
PICTURE A GIANT SCALE THAT NEEDS TO BE MADE EVEN
A good way to think of asset equalization is by imagining a giant scale where you each have a side. Because the law generally looks at a marriage as a financial partnership, everything you built and bought together during the marriage is placed on the respective two sides of the scale.
He owns a car worth $40,000? That goes on his side and now the scale is off balance.
You have a savings account worth $40,000? That goes on your side, and now the scale is back to being balanced.
You go through all of your assets in this manner, placing them on one side of the scale or the other. If something is owned jointly, 50% of the value goes on one side and 50% on the other.
If once all items are placed on the scale, one side has less than the other, the other person makes a payment to create the required balance. This way, both people walk away with an exact equal share.
WHAT DO YOU INCLUDE ON THE SCALES?
The scales must include almost everything acquired or built from the day you married to the date of separation. (There are some exceptions so this is an area where you must get professional advice.)
For women over 50, it is important to be thorough as you are securing your future. The family home is often the biggest piece, but retirement funds, savings accounts, and shared investments are just as important.
DEBTS ARE INCLUDED TOO
But what about debts? These go onto the scales too. Beware as debts can prove to be a source of much distress, especially if an ex-husband has been financially secretive or outright dishonest during a marriage.
One woman I know only realized during her divorce proceedings that her ex-husband had irresponsibly accumulated a huge amount debt that she knew nothing of—and now she had to assume 50% of it. Imagine her shock.
COMMON TRAPS
As you navigate this process, it is easy to trip over a few common traps. One big mistake many women make is fighting to keep the family home at all costs without realizing how expensive it will be to maintain, heat, and pay property taxes on a single income.
Another important point is being sure to set your “date of separation” accurately because this is considered the official “end date” of your marriage, financially speaking.
Finally, be sure to focus on the “bottom line” in terms of financials, remembering that some assets are preferable to others. For example, cash in the bank is worth more than funds trapped inside a retirement fund, which will be taxed heavily when you eventually withdraw it. Getting sound tax advice is crucial.
VALUATIONS: THEY ARE TRICKY AND SHOULD NEVER BE TRUSTED OUTRIGHT
Keep an eye out for valuations and hidden wealth. Corporate pensions, stock options, or business valuations can be very tricky to calculate, and it is very common for them to be undervalued. Use your own financial expert for valuations and do not trust valuations provided by the other side.
Take an investment property, for example. It may be able to fetch $500,000 if sold, but your ex has found an appraiser who was willing to take a pessimistic view on the property, valuing it at $375,000 instead. This isn’t “wrong” per se, as the appraiser is giving what they would call their “professional opinion” versus a statement of fact.
Meanwhile, the difference is $125,000, which is a lot. And half of this, $62,500, is what you would be out if you simply took this lower appraisal at face value. You need to get your own appraisals of every asset, no matter what your ex assures you.
START COLLECTING DOCUMENTS
As a first step to this process, begin gathering all of the documentation you will be needing. This includes recent bank statements, tax returns, credit card statements, and pension details. Retain solid legal and financial representation to help you sort through the numbers.
You helped build this life, and ensuring everything is balanced fairly is the way to protect your future.
