Divorce May End a Marriage but Credit Issues May Last Forever
February, 2009
When love goes wrong, there are a host of money pitfalls and potholes on the road to and from the courthouse.
Soon-to-be singles will benefit greatly by adding a financial planning professional to the team, especially one with special training in the area of divorce planning.
Too often individuals are caught up in the emotions of a love gone wrong and are too distracted by grievances to see the bigger picture.
Regardless of who gets the house, there are issues that neither the court nor your attorney may be skilled enough to address with you.
Consider how poor credit decisions, a job loss of an ex-spouse or medical problems during or after the divorce might impact you. Otherwise smart people can make big mistakes that will haunt them as they try to start over.
Key points for you to consider:
- Get your own financial advice: Just as you should not rely upon your spouse's attorney, you should not rely upon his or her financial advisor. Saving a little money on advice now may hurt you later. In most cases, attorneys and courts are not skilled enough in the area of financial planning to adequately evaluate settlement offers to determine if they are equitable and in the long-run best interests of each party. This is where an experienced planner will pay off in spades. Good planners experienced in this area will be able to identify financial issues unique to the situation and help evaluate the financial impact of settlement offers as well as outline the action steps to take to make sure your credit is preserved so that you are not adversely impacted later.
- Review each other's Reports: While credit issues may be the least of one's concerns when dealing with a risk of physical danger, it's important to not lose sight of its importance in the big scheme of things. Before the divorce is finalized, negotiate to inspect each other's credit reports for a period prior to and just after the divorce is finalized. Trouble can surface and it's helpful to identify potential issues ahead of time. If both sides haven’t already obtained their annual free credit reports from the three major credit agencies (TransUnion, Experian and Equifax), the place to go is www.AnnualCreditReport.com.
- Remove your ex-spouse from your accounts immediately: Call all lenders on joint credit accounts to arrange to remove the ex-spouse's name as an authorized party. Terminate joint asset accounts as well. This will need to be coordinated with the ex-spouse or his/her attorney to make sure that there is a proper division of liabilities.
- Consider refinancing joint debts you keep after the divorce: Whether it is for a mortgage, equity loan or auto, it is a good practice to arrange to refinance these debts to remove the ex-spouse. This might be easier said than done given the realities of each household's new cash flow situation, but it will make things easier if possible. If it's not possible to do so immediately, it is important to arrange for a credit-monitoring service to alert you about negatives impacting your credit report and consumer credit score. This will lessen the likelihood that erratic or even fraudulent credit activity by a former spouse will go unchecked and severly impact your own good standing.
- Update your beneficiaries and estate plan documents: In the daily rush of life, it is all too common to forget to update beneficiary designations on asset accounts, retirement accounts or life insurance. Contact your employer to arrange changes to delete your ex-spouse from benefits if permitted by the divorce decree. Nothing can be more painful than to have an unfortunate or untimely death result in your ex-spouse receiving your assets or insurance. It happens all too often and is far from amusing to the loved ones who depend on you. Ideally, you should also consult with an attorney when your divorce is final to update estate planning documents like your Will, Power of Attorney and Health Care Proxy as well.
Those who own a business or investment property interests have other special considerations.A divorce is far more involved than simply signing a final divorce decree. As I've tried to highlight here there are a range of financial issues that will impact each party and their children.For a more complete checklist of the types of issues you may need to be aware of if planning a divorce, please call me directly for a complimentary copy of the Divorce Planning NewStart Checklist.