Divorce is rarely a short process. Here in Texas, it takes no fewer than 61 days for a divorce to become final, and often requires up to a year depending on how complex your case is (and how badly the other party does or does not want out). Quite a lot can happen in a year; here on the Gulf Coast, hurricanes and flooding events are common enough to be a threat while your case works its way through the system. Most of the problems for your divorce case will arise from a change in value of the property you own. So what happens to you, your property, and your case if there is a natural disaster during your divorce?
An Ounce of Prevention
In my hometown of Houston, the most common disasters are hurricanes, tropical storms, and major rain events. Those can all lead to flooding, and hurricanes can lead to wind damage or damage from flying debris.
As the saying goes, “An ounce of prevention is worth a pound of cure” — so be sure that someone is continuing to pay the insurance premiums for your jointly owned home, autos, and any other personal property of value while your divorce is ongoing. Make sure your policies cover the type of hazard that you are vulnerable to. For example, water damage to your home from flooding isn’t covered by a basic policy — this coverage must be purchased separately. A good insurance agent can help you select the right amount and type of coverage for your property and locality.
Let’s assume the worst happens, and a major flooding event causes damage to your home, its contents, and your autos.
What Now?
As with any disaster, your first job is damage assessment. What was damaged? What can be saved? What is a total loss? In general, if a household item is a total loss, you’ll simply zero out the value of that item on your Inventory and Appraisement[1], noting that it was damaged beyond repair in the disaster. After you’ve assessed damages, you’ll need to start filing insurance claims. Two important points here:
- Open a new bank account into which you can deposit all insurance claim payments and pay for all damage repair and asset replacement — this will make tracking much easier.
- Include the value of all insurance claim payments on your Inventory and Appraisement up until the time you use those funds to make repairs or replace assets.
- Include any replacement items on your Inventory and Appraisement if you acquire them before you negotiate your settlement.
Most of your personal property that is damaged (furniture, electronics, clothing, etc.) can be noted as a total loss and then quickly replaced. Your car and home are a different story.
The Car
Let’s look at three potential scenarios.
- You don’t have coverage for flood damage and are unable to file a claim. In this case you’ll value the car on your Inventory and Appraisement at zero (in the event of a total loss), scrap value, or a reduced value based on the amount of damage. Kelly Blue Book’s website at KBB.com can be a very useful tool in assessing the value of a vehicle in just about any condition.
- You have coverage for flood damage, and your vehicle is declared a total loss. In this case, you’ll value the car at zero on the Inventory and Appraisement and include the amount that the insurance company pays out on your claim as an asset. Once the check arrives and is deposited, this will show in the bank account you set aside for insurance claims.
- You have coverage for flood damage and your vehicle is repairable. In this case, you’ll value the car at a reduced amount to allow for the damage (once again KBB.com is a good tool), and include the amount that the insurance company pays out on your claim as an asset.
If you buy a replacement vehicle before you attend mediation to negotiate your final settlement, include on your Inventory and Appraisement the value of the new vehicle and the balance on any loan you took out. The money used to make a down payment (or full purchase) will be accounted for by having a smaller balance in the account where you are keeping insurance claims payments.
The House
Flood damage to your home is a bit more complex. Let’s look at two scenarios.
- You don’t have coverage for the damage sustained and you are unable to access help from a governmental body like FEMA. In this case, you’ll need to have the home appraised in order to properly assess its value. That is the value you’ll use on your Inventory and Appraisement.
- You either have coverage or can access help from a governmental body like FEMA. You’ll still need to have the home appraised, since repairing flood damage can take months and you likely don’t want repairs to delay your case. Deposit any claim monies paid out to you into a bank account that is strictly for tracking insurance claim payments.
At this point, you’ll need to work with your attorney, and possibly a Certified Divorce Financial Analyst™ (CDFA®), to determine whether you want to repair and keep the home, ask that your soon-to-be-ex-spouse keep the home to do with as they wish, or sell the home without making repairs and split the proceeds.
You may be wondering who keeps the insurance money. There isn’t a hard and fast rule about this matter. But an argument can be made that the party who keeps an unrepaired (damaged) asset should be allocated the insurance payment as well. In this way, the party is made whole for the damage to the property.
Remember, should the worst happen, you have a playbook to follow:
- Assess damage
- File claims
- Track the money
- Keep your Inventory and Appraisement up to date
- Rely on the advice and counsel of your attorney and CDFA® Professional
A natural disaster during divorce is just one more problem most people don’t need. The support of a financial professional like a CDFA® in addition to the guidance of your attorney can help you keep your case on track, regardless of what Mother Nature throws your way.
Curious about adding a CDFA®Professional to your team?
Call me directly at (713) 973-3814 or email at scuddy@rwbaird.com
[1] An Inventory and Appraisement is a listing of all the assets you and your soon-to-be-ex-spouse own. The list includes values for each item and is used when negotiating your settlement.