Do you (or someone you know) know
someone who is going through a divorce that needs a few financial preservation
tips? I do!
Even
though I have never had the unfortunate experience of a divorce, I have helped several of my clients through the financial transition from joint to individual
finances. When couples go through a
divorce, they are not only divorcing each other; they are also divorcing their
finances as well. Financial Divorce can be
just as, if not more, emotionally draining and frustrating. Depending on how amicable the separation is,
may determine the ease or complexity of the separation of finances.
Regardless
of where a person is in the separation, here are 5 quick tips about How
to Divorce Finances through a Divorce.
Get Organized!
Gather
as many financial documents as possible. Financial statements and documents will
be requested and may be required during the separation process. Here is a Divorce Financial Checklist of
documents that may need to be gathered. Consult with a divorce attorney for all
of the documents that will be asked for and required to remit to the court.
Separate Bank Accounts
Make
sure to open separate individual savings and checking accounts. Don’t just open an account in desperation … rather;
make sure to open up an account at a financial institution that is conducive to the financial needs and usage. Open an account with great customer service because they
may be needed for assistance through the financial transition. Avoid accounts or financial institutions with
excessive fees.
Update Direct Deposit
Don’t
forget to update direct deposit or payroll deductions through the employer from the joint account to the
new individual bank account(s) established. If the
joint account is responsible for paying bills that may affect the credit
reports, continue to make deposits just enough to pay those bills OR stop the
bill payment or payroll deduction from that joint account and set it up in the individual
account to maintain a positive credit history.
Do a “Clean Break” with Loans
Having
joint debt is like having a child together.
Regardless of the status of the relationship, both borrowers are equally
responsible to pay the debt until it is paid in full despite what the judge or
divorce decree says. So, first things
first … get copies of all three credit reports from Equifax, Experian, and
Trans Union from www.annualcreditreport.com. The best way to preserve credit history
during a divorce is to do a “Clean Break.” Identify all credit accounts, and
then try to negotiate who will take on what debt. Once that is agreed upon,
each should try to get an individual loan to pay of the joint loan. If either person does not qualify for an
individual loan to do a “Clean Break,” try to agree that the
other person will make timely payments on the joint loan. This is important
because if the one person pays late or not at all, it will negatively affect the
other person’s credit and ability to obtain the credit that may be needed after
the divorce. This is especially critical
with credit cards. Make sure to block
the credit card lost/stolen and request a new card number to avoid future usage
from the other part.
Update Beneficiaries
Don’t
forget to update all financial documents! Update the beneficiary on your
retirement savings account, insurance policies, bank accounts, etc. Also, don’t forget to update the W-4 once the
separation is final. During the divorce, many people forget to update this
important information.
The
best way to get through this tough situation is to try to think of the
financial side as a business matter.
However, if the separation is not amicable, it may be best to have the
divorce attorneys to discuss and negotiate these and other matters.
It
is also a good idea to work with a financial professional or counselor for
guidance during the financial divorce. Best wishes and contact us for further assistance.
Making Money Matters Manageable,
