Whether it comes before or after the papers are signed, economic hardship is all too familiar to many couples who divorce. If you follow a few financial guidelines, it will ease the burden during this difficult time.
Divorce by the numbers.
Every year, over 1 million Americans divorce. More than 70 percent of divorcing couples cite “debt and financial distress” as the primary factor in the dissolution of their marriages, according to an American Bar Association survey, and studies find that most families suffer a financial decline following a divorce. If a married couple takes home 100,00 a year, a divorce essentially splits the income between the two. In addition the costs have doubled because both couples will now have to pay the following separately: phone, rent, gas, etc. So a divorced couple will see their income cut in two with more costs than before, talk about real pain! By taking the proper steps to protect your credit, families can come through in much better shape. I get this information from Bills.com, a national consumer finance portal, which encourages divorcing couples to take the following steps:
- Accurately assess debts and liabilities. First, see yourself as your creditors do. You can see your credit profile at http://www.myfico.com . You can also request a “tri-merge” credit report (a summary from all three major credit reporting bureaus). Note all of your existing shared and individual liabilities. Settle (or get a judgment) on how you’ll allocate these responsibilities. This is important, you must insure that if you are no longer responsible for some of the debts that you tell the credit agencies.
- Have a plan for your home. If you own a home, the mortgage is likely your most significant monthly payment. Be certain you understand how you’ll resolve the monthly mortgage payments, and how you’ll divide the home’s value. You could sell your place to your partner, you could sell your place outright or one partner can take over the mortgage.
- Make a budget. Make sure it is detailed and reflects your new income level. Use your excess cash to pay off your debts. One of the best ways to do this is to pay off your smallest bills first and then work your way to your bigger bills. Try to get rid of your unsecured debt, such as credit cards, and always start with the account with the highest interest rate.
- Make sure your ex-spouse is making their payments. Have a way to monitor this. It is very hard to discharge joint debts and if you have decided to divorce, both parties need to honor their commitments. If your ex decides to skip out on their obligations, it will affect you! If possible, make provisions in the divorce agreement for reporting on resolution of significant debt. There are important implications for you personally if your ex spouse does not meet their end of the bargain on liabilities allocated through the divorce process.
- Call all creditors for shared accounts and close them. Remove your name from all accounts that are held jointly.The law varies state by state but in essence jointly held credit cards, and for any other debts incurred during the marriage have shared liability and thereby share any potential negative credit rating impact. This means you and your spouse are on the hook for these payments ,and if you don’t make your payments on them, it will hurt your credit score.
- Taxes Taxes! The IRS does not have to honor a decision from a divorce judgment.So make sure you are aware of the tax implications of a divorce. Consult a tax expert for help on this.
- The main goal regarding your finances after the divorce is restoring your credit and financial health. Start a savings plan and pay down debt. Reinvest any proceeds or equity that come out of the divorce proceeding, and be mindful of building yourself a retirement fund for the future.
Getting a divorce is very stressful but you must be mindful of the financial implications because they are huge! If you need help, seek help immediately from a reliable adviser.
At DivorceCures.com we have a full section of professionals that can help you in our directory during this very stressful time.