Thursday, 20 April 2017

For better or worse, divorce rates have hovered around 50 percent for decades.

Yet most people find themselves emotionally and financially unprepared for one of the toughest periods of their lives—but it's important not to be caught off-guard. To start this new chapter of your life on more solid financial footing, consider these three money steps as soon as you sense a split is on the way:

Collect all critical documents

Any divorce negotiation—whether friendly or contentious—comes down to two things: children and money. Even if you believe there is no money to argue over, you implicitly trust the other party, or you find money matters intimidating, you cannot afford no to take responsibility and gather necessary financial documents.

This is especially true if your spouse was primarily responsible for managing the family finances. Collecting this information isn't being sneaky or suspicious, but rather simply protecting yourself and making the separation and divorce process easier and fair for both of you. Assume that your spouse will require the same.

  • This list of financial documents includes:
  • Checking and savings accounts 
  • Credit cards, including those that have zero balance 
  • Mortgages, deeds and property tax statements and on all real estate owned—including personal, investment, vacation and inherited properties.
  • All investment and retirement accounts—including those sponsored by the other spouse's employer, and even if they are in his or her name only. These can include brokerage accounts, stock options, stocks, bonds, funds, annuities and pensions.
  •  Any debt, including mortgages, credit cards, personal loans, home equity lines and student and vehicle loans
  •  Life insurance policies. Contently 1 Wills and trusts
  •  Tax returns and income information, like W-2s and 1099s
  •  Financial statements from any businesses either party owns or in which they are an investor or partner

Don't rely on joint accounts

In divorce, it is not uncommon for one party to charge up credit card bills on spending spree, or clear out a joint checking account to take a new mistress on vacation—leaving the other party struggling to buy groceries. Especially if your ex earns the bulk of the family income, it is critical that you have access to your own money for daily expenses, while you're setting up a new home and planning for legal fees.

Protect yourself. Make sure you have in your name only:

  • Checking account 
  • Savings account 
  • Credit card 
  • Cash in hand. Some lawyers suggest a minimum of $5,000.

 Build your credit score

As overwhelming as divorce may be, it's important to start envisioning a future that's independent of your spouse. This includes personal finances that are separate from him or her, because any healthy financial future relies on a healthy credit report and credit score.

In the short-term, you will likely need access to credit to start your new life—renting an apartment, paying for a lawyer, and living day-to-day on a lower income than what you're accustomed to. In the long term, you may want to buy a home or car, or even start a new business. All these require a healthy credit score.

To give yourself as many financial options as possible, consider these steps: Get a free credit score and credit analysis at Credit.com. Additionally, get a free credit report here.

Scrutinize your credit history for any credit checks or lines of credit that you were not aware of, or believe were taken in your name erroneously. Report those items to the credit agency, and contact the credit issuer, if necessary.

If there are credit cards or other joint debt held in both spouses' names, the primary card holder might want to call the card company and ask the authorized user be removed from the account. In the cases of joint accounts with outstanding balances, either card holder should request the account be frozen until the issue is resolved legally. This protects both parties from out-of-control spending.

Remember: minimum monthly payments still must be made on frozen accounts. To remedy a low credit score, use your current credit card responsibly. Charge less than 20 percent of the limit each month and repay it in full and on time. Pay down any credit card debt you have on your current card—opposed to transferring the balance to other cards.

Opening new lines of credit hurts your score. If you don't have a credit card in your name, consider applying for a low-interest card, and make regular payments of 20 percent of available balance or lower, and pay it off in full —and on time.

If you haven't been working, get a job. While your income does not affect your credit score, it will impact your ability to get a mortgage or car loan. Plus, stay-at-home parents often find they must return to the workforce after divorce—whether because courts demand it, or their new financial realities mean they now need to earn income of their own. Remember, credit is like relationships: What goes around comes around. If you rack up a bunch of frivolous debt during the divorce process, you likely will have to pay for it—one way or another. 

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