I assume that most people believe a divorce attorney’s advice for engaged couples would be, “Don’t do it.” For this attorney, at least, you would be wrong. For reasons I won’t get into in this blog post, I believe it safer for most people to be married rather than living together when it comes to splitting assets, among other things. For those reasons alone, I am strongly in favor of marriage.
You might also think that a divorce attorney would recommend a prenup. Now, I do believe that it is far easier to split things into two while you both still like each other, but a prenup might not be economical if neither you nor your partner have a lot of assets when you get married, or kids from a previous relationship.
So what would this divorce attorney advise an engaged couple? I would advise you to keep copies of your 401(k) statements (or other defined contribution plan(s), especially if you are now single. At the very least, you should keep a statement they receive closest to the date you are planning to be married.
Possibly the most common type of retirement benefit now is a 401(k)/403B/tax savings plan benefit. If your employer provides this type of benefit, you most likely receive a statement either monthly or quarterly from the plan administrator. If you are planning on marrying and have not kept copies of these statements, you may end up giving your spouse a greater share of your interest in your retirement plan should you ever find yourself facing divorce.
‘Til Death You Part (Maybe)
Now, most engaged couples believe that their marriage will not end until one of them dies, and they usually cringe at any suggestion that they might divorce. For this reason, they shun divorce planning advice. But for years now it has been established that 50% of first marriages end in divorce and 60% of second marriages end in divorce. The likelihood that the marriage might end in divorce is at least 50/50.
In Michigan divorces, a spouse is entitled to roughly half of all assets that either spouse acquired during the marriage, plus the appreciation during the marriage of all assets either one owned before the marriage. Therefore, knowing the value of an asset you owned when you got married is important.
In the past, when drafting the orders to split retirement benefits, attorneys usually just requested that the employer or plan administrator determine the value of the client’s benefit at the date of the marriage. More recently, plan administrators of retirement benefits are responding that the records they have only go back so many years. We can probably assume this trend of limiting access to past records is going to continue.
If it does, you could run into problems if you haven’t kept good records yourself. If you have been married for 25 years, but the plan administrator only has 15 years of past records, the employer/plan will not be able to give you the value of the plan that is “separate” (yours alone) so that you can easily figure out what part is “marital” and subject to division at divorce.
If you do not have a record of what your benefit was worth at the time of your marriage, then you and your spouse will have to agree on a figure. Reaching that agreement may not be easy. Your recollection, if any, could be faulty, and both you and your spouse would both have an incentive to “remember” a figure that is favorable to your position.
Alternatively, you could have an actuary determine what the benefit was based on the market fluctuations and contributions to the plan annually. Again, this would require knowing the contributions you made each year, which would in turn require that you have copies of all W-2 forms during your entire term of employment. Possibly, the W-2 forms could be discovered from your employer if you don’t have them—assuming the employer still does. In any case, the additional discovery costs and the actuary costs would unfortunately add to the cost of your divorce. And you can double those costs if each of you wants your own actuary to determine the value.
Doesn’t it seem a lot easier (and cheaper) to hang onto the information from a couple of pieces of paper?
Simple Precautions Now Can Save a Lot of Trouble Later
These days it is easy to either maintain paper records or scan the documents into some electronic form of media and save the information. And although we have been discussing retirement benefits, this advice would apply to all assets you own at the time of your marriage. If you can save documents that establish the value of any individually owned property, whether it be retirement benefits, stock portfolios, business values, real estate, or personal property, you will make life easier for yourself and your lawyer should you find yourself in that 50% of marriages that end in divorce.
My best advice then, if you are considering marriage: preserve records of the present value of everything you own. As my financial planner friend always says, “People don’t plan to fail, they fail to plan.” So please take this advice yourself and pass it on to engaged friends and relatives. Hopefully, none of you will need it down the road—but if you do, you will be glad you took it.