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What To Do About Major Financial Purchases

Justice cannot be for one side alone, but must be for both.

(Eleanor Roosevelt)

Even during the upheaval of a divorce, life carries on—and so do the bills and financial necessities. Besides the legal bills you’re footing for the divorce, the change in your situation may precipitate other costs, such as buying a larger car to transport your kids or purchasing another home to live in and furnishing it. If you are considering making a major purchase, make sure you are aware of the financial impact on your divorce before proceeding.

ANYA’S STORY

About three weeks after my husband and I started discussing divorce, our minivan finally died. The last thing we wanted to deal with was buying a new car, but with three kids, we had no choice. Fortunately we both recognized the urgency and the need for the car both during and after our divorce, so we were able to come to an agreement about how much to spend. It helped us to focus on the minivan as something for our kids, rather than a car for me. [Anya]

GETTING PRACTICAL

How major financial purchases affect your divorce depends on the laws of your state, the source of funds used, financing, and what you buy.

State Laws. How your large financial purchases are treated by the court depends on the state you live in. If you live in a community property state, where all assets acquired during the marriage belong to both spouses and are split not evenly, but equitably, then it is viewed as community property and the court will include it in the eventual distribution of that property.

If you live in a non-community-property state, large purchases made by you or your spouse are presumed to be acquired through equal contribution and thus the value will be subject to equal division. Whichever spouse keeps the purchased item receives a smaller share of the remaining assets, or in some cases, may be forced to sell the item and share the proceeds.

Source of Funds. If you use marital assets to make the purchase, it or its value will be subject to division by the court. However, if you used your own personal income or pre-marital assets, the court will likely consider it as separate property. Courts tend not to divide separate property if you and your spouse are on relatively equal footing in your finances. However, the court does have the authority to divide such individual property to achieve a divorce that is fair and equitable.

Financing. Many expensive purchases require financing. In the court’s eyes, property purchased on credit has no value and is considered a liability. The court typically assigns the debt to the purchasing party. The court will take into account down payments made using marital assets, and will usually award the non-purchasing spouse more of the remaining assets to compensate. 

Item Purchased. What you buy could make you look bad in the eyes of the court. If you claim that you can’t make child support or spousal support payments, making expensive or unnecessary purchases could suggest that you’re not financially prudent. While buying furniture for your new home can be justified, dropping a bunch of money on a vacation rental probably won’t help your case. 

BE AWARE

If you are concerned about your soon-to-be-ex spouse making large purchases with joint assets, you can ask the court for a financial restraining order. This restricts both spouses from making large purchases beyond regular living expenses, without first asking the court for permission. In such a case, the other spouse can object to the purchase, and the judge will rule whether to allow or deny it.

There’s not always a clear rule for when petitioning the court is required. When determining necessity, it’s usually safer to err on the side of asking permission before making a substantial purchase.

REMEMBER

Finances during a divorce can be complicated. Make sure you take everything into consideration before making a major purchase. If possible, it is a good idea to wait to make large purchases, because they might have a substantial impact on your case. 

TAKE ACTION

Review your state’s laws regarding division of property and speak with your lawyer about the impact your large purchase would have on your divorce.

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