How often have you heard about a divorce that went well?
And when someone tells you their divorce went smoothly with
no hard feelings, you would be smart to wonder how the
other side felt about the divorce settlement. There are
definitely winners and losers in divorce proceedings, and
all too often, one party is left with too few assets or too
many debts. These days, it's not just a question of who
gets the house. It's also about who has to pay off the
loans - a big factor in today's credit-mad society.
So what should you do to make a clean break from someone
else? You must split your financial life formally and
legally. You also need to continually check your own credit
report to make sure that your ex-spouse is doing what they
are required to do (and no more). If your name is still on
a loan or credit card, it can take some expensive legal
wrangling to prove that you're not responsible for old
debts or debts incurred after the divorce is final. And the
final ruling might not be in your favor.
Pay careful attention to the following details:
Credit Cards - These should be paid in full and closed. If
there isn't cash available to pay off the cards, then a
balance transfer should be made to a new card that is
issued only to the responsible party's name. It's not
enough to close the old card to new charges. The truth is
that if both of your names are on the card, then either one
of you can reopen the account to new charges without the
other's knowledge. The result can be disastrous to your
financial health.
Mortgages - Typically, your divorce degree will tell you
who is responsible to pay the mortgage. However, if the
mortgage is in both your names, it should be refinanced
into the responsible party's name. If your name is still on
the mortgage, and you're no longer responsible for
payments, your ex-spouse's late payments could affect your
credit and your ability to finance a new home.
Loans - Your loans should be handled the same way as the
mortgage. Even a relatively small loan, like an appliance
store credit account, needs to be transferred to the
responsible party's name. Small loans can hurt your credit
when they are paid late or defaulted.
Beneficiaries - Beneficiaries are often forgotten in
divorce proceedings. I'm not talking about the physical
presence of your loved ones and dependents, I'm talking
about the name you've automatically written on all your
accounts since you were first married. Who gets your assets
if something happens to you? If you've always written your
spouse's name, then you need to update the beneficiary line
on your investment accounts, insurance policies, and
retirement accounts to make sure that the parties who most
need the money will have it available to them.
I have a client who missed one of these details with her
divorce. As a result, she was threatened with wage
garnishment and had to make the difficult decision to file
for bankruptcy. She now has a higher interest rate on her
mortgage, credit cards, and homeowners' insurance. Higher
rates mean that it's much harder for her to afford some of
the necessities.
A personal friend of mine filed for bankruptcy with his
divorce and thought that all of his credit debt was in the
bankruptcy. When he went to purchase a new car, he found
out that one credit account was not included in the
bankruptcy and therefore he had trouble getting his auto
loan. He did finally get the loan, but at a much higher
interest rate.
Don't let this happen to you. Making a clean financial
break will make it much easier for you to start over. If
you're not sure which debts are in your name, ordering a
credit report can give you the knowledge you need to begin
sorting through the details.
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Jill Russo Foster provides practical tips for everyday
finances. Learn more about protecting your credit and
living within your means with Jill's popular free report,
bi-monthly ezine, and credit report reminder program,
available here ==>
http://www.themortgagearrangers.com/resources.asp
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