Family Law

Divorce Preparation: Step 7 - Assess the Financial Accounts

By Jennifer Rice, Esq.

Here is the seventh post in a series about preparing for divorce. Divorce attorney Michael Sherman of the Alabama Family Law Blog has tips on divorce. I've added my comments in italics.

We continue with our series on steps to take when divorce is imminent. We are on to Step 7 which is Assess the Financial Accounts.

If you?ve completed the prior steps in this series, then you already know what accounts exist and what the balances are. You need to make a decision about what to do with them.

It is an unfortunate reality that one of the first things that some spouses do when they learn/decide a divorce is imminent is to raid the accounts. This is typically done after receiving particularly bad advice from an adversarial lawyer or a well meaning, but poorly informed friend. There often is a difference of opinion between attorneys about whether you can take money out of the accounts or not. Once the divorce petition is filed, there is an injunction that is part of the summons that states that neither party may dispose of marital property or take on additional debt. There is an exception -- you may use marital property or incur marital debt for reasonable and necessary living expenses. If you were not allowed to use any of the "marital" money (from a joint bank account for instance), the utility payments could not be paid. I always tell clients you cannot buy any diamonds, extravagant vacations or any thing that is not in the normal usual course of business or your life.

In a perfect world neither party would touch the financial accounts except to pay normal household bills until after the divorce is over. However, if this was a perfect world, you would not be reading this blog, and I would be in another line of work because divorce lawyers would be unnecessary.

That being said I do not recommend that you clean out the accounts. Doing so immediately escalates the conflict and stress of divorce. It also will not be well received by the divorce judge.

So, you don?t want to clean out the accounts, but you want to be protected from your spouse cleaning them out. If you have a reasonable fear that your spouse will raid the accounts, the only reasonable solution that I know is to remove one half of the funds from the accounts and put them in a new account in your own name. Do not hide, dispose, or waste the money. Document carefully where every penny is spent because you will likely need to make an accounting of it later in negotiations or at trial. Make sure that you keep careful track of what bills and expenses are paid from the joint monies. Generally, the Court considers money spent or credit card debt incurred to pay for attorneys' fees as reasonable. So you often see parties taking a couple of thousand dollars out to pay for attorneys. Paying your $40K CD to an attorney so they could hold it would probably be looked at as suspect unless you have lots and lots of marital property and businesses to value.

Additionally, you should not do this for the regular checking account out of which the household expenses are paid unless there is a substantial balance in the account over and above the amount needed for paying the current month?s bills. You do not want to take action that would cause checks to bounce. Putting any joint monies into a "separate" account in your own name does not magically make it a separate asset. It just means that your spouse is unable to spend any money that they do not have access to. Be careful that the half that your spouse gets from the account is not spent while you save your portion. The Court may see your half as the only part left to divide -- in half again.

I don?t make this as a blanket suggestion. If the money can be kept there and neither party remove it, that is preferred. Another option for certain types of accounts is to put a freeze on the account. Obviously that is only practical for accounts that are not regularly needed to pay bills and regular expenses.

Before you decide how to handle your financial accounts, consult with your lawyer. If they are suggesting you go take all of the money out without a good reason, I would seriously reevaluate the whether that lawyer shares your desire for a civilized divorce.

Full post as published by Colorado Family Law Blog on July 13, 2007 (boomark / email).