A Secret to Saving Big in Divorce? Choose the Right Filing Date!
After you’ve made the difficult decision to divorce, your next choice needs to be a strategic one…
When is the best date to file?
Your divorce filing date fixes a cut-off date for the accumulation of martial assets, including 401K retirement accounts, company stock options, and some bonuses at work. Assets accumulated during marriage — right up to your filing date — are considered marital assets. These assets will be divided in your divorce between you and your spouse. Assets acquired AFTER the filing date, however, are generally considered non-marital assets. These assets will not be part of your divorce and can be yours free and clear.
Let’s say, for example, that you file for divorce on Monday and your next 401K contribution is deposited on Tuesday. Your spouse can only claim a portion of what the 401K plan was worth on Monday. Contributions made on Tuesday and thereafter are free from asset division in your divorce and yours and yours alone.
What else do you need to know about your divorce filing date? Here are some key tips to make sure your filing date will save you money:
You still have time to reconcile
Just because you filed divorce papers doesn’t mean you need to immediately serve your spouse. If there is still any room for reconciliation, remember that you don’t need to serve the papers for a certain number of days after you file. Filing simply gives you the safety of that cut off date AND the ability to keep working on your issues. If you use that in-between time to reconcile, that is wonderful, you can then have your filing dismissed.
Another tactic if you are still considering whether you can still save your marriage is to establish a “tolling agreement” with your attorneys where you fix your own cut off date for martial asset accumulation. If you do ultimately decide to divorce, this agreement can be provided to the courts.
Your filing date is also the cut off for martial debts
Just like assets accumulated during marriage, the clock on marital debts stops ticking once one spouse files for divorce. You may wish to file sooner rather than later if you are married to an ex who is the type who will max out credit cards as a form of revenge. Filing before they are able to do that will significantly reduce/eliminate the likelihood you will be responsible for any of this debt.
Is there evidence that your spouse has been buying a lot on credit, or is your divorce conflict at the level that you could possibly see your spouse spending excessively as a form of revenge? Factor these in as you make your decision to file.
Picking the optimal filing date
To understand the best date for filing in your divorce, analyze all your financial accounts. Do you have upcoming retirement contributions, work bonuses, deferred compensation plan or stock option payouts coming up. What is your best filing window based on these dates? Even saving a few quarters of 401K contributions from asset division can contribute to heftier retirement savings that won’t need to be shared.
The impact on alimony and other “marriage duration” issues on filing
Look into your state alimony laws to check for rules around what is considered a longer marriage that could be subject to more years of alimony, or even permanent lifetime alimony. If you file during your 19th year of marriage that could prevent your marriage from hitting the 20-year mark, which is significant in many states in determining longer term alimony awards. Similarly, there is a 10-year marriage benchmark for distributing social security. In marriages that last 10 years or more, it’s a federal law that the lesser earning spouse can make a claim on the other spouse’s social security if certain factors are met. If you are getting close to this milestone and divorce is on the table, it may make sense to file sooner rather than later.
When should you wait to file?
If your spouse makes more money than you, please know that this is a SECRET that works in reverse too! You can always hold off on filing should there be financial advantages for doing so.
When you are strategic about your filing date, you can feel confident right from the very first step in your divorce that you are in control and protecting your future.