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People spend a lot of time, energy and money planning how to protect their assets from taxes and probate fees. However, the financial consequences of a divorce are much greater than any tax bill or probate fee. A divorce could cause you to lose your home, your business, your standard of living and many of the things that you have worked so hard to earn.
7 Ways To Protect Your Assets Before Your Divorce
To start, you should understand how property is divided upon separation.
Now, here are seven steps to protect your assets from a divorce:
Step #1: Make sure your exclusions remain excludable. When calculating your net family property, you may exclude the value of certain items. These items include gifts from third parties, inheritances, personal injury awards and life insurance proceeds. When you receive funds from any of these sources, you should keep them separate from all of your other property. Otherwise, you risk losing your exclusion.
The burden of proof is on you to show that you are entitled to an exclusion. So make sure you keep detailed records of all financial transactions involving excluded property. Then, if you ever separate, you can prove that the property is excluded. If you cannot prove the exclusion, you will not get it.
Step #2: Make sure your deductions remain deductible. When calculating your net family property, you are entitled to deduct your net worth on your day of marriage. Over time, you may not remember what you owned on your marriage day, much less be able to prove it. If you wish to take advantage of a deduction, keep a record of your property's value on the day of your marriage. As with exclusions, the burden of proof is on you. If you cannot show that you are entitled to the deduction, you will not get it.
Step #3: Beware the matrimonial home. The value of a matrimonial home is an exception to the rules of dividing property on separation. The home's value is always divided equally between the parties, no matter what. This is obviously a big exception because, for most couples, their matrimonial home is one of their largest assets. Therefore, be careful about which funds you use to purchase your home. Do not use excluded property because you will lose your exclusion. Similarly, when buying a matrimonial home, you should ensure that you have other assets at least equal in value to what your net worth was on your day of marriage. Otherwise, you will lose your deduction for this.
Note that you can have more than one matrimonial home. Normally, for instance, a cottage is considered a matrimonial home. A retired couple may even have three matrimonial homes: a home in the city, a cottage and a winter residence in Florida.
Step #4: Move out of the matrimonial home. If you owned a home on the day you married, and you are living in it now, if you separated, then you would lose half of the home to your spouse. The law allows you to deduct from your net family property the value of assets you owned on your date of marriage; however, this does not include the value of a matrimonial home.
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