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A broken marriage need not break your finances

How to cope with the financial complications of divorceLet's face it, next to death, the topic we least like to think about is divorce.

Although the U.S. Census Bureau ceased compiling divorce statistics in 1990, experts agree that fully half of all U.S. marriages will eventually hit the skids.

The leading cause of divorce in America? Disagreement over money.

The dissolution of a marriage is often fraught with heartache, but the financial consequences can be equally devastating and, what's worse, can last longer. Three out of four divorcees will remarry within three years, but it can take longer than that just to dig out of divorce-induced debt, much less rebuild a credit rating.

The emotional strain of a marriage gone sour, especially over money, often leads to financial blows, according to Kerry Hannon, author of Suddenly Single: Money Skills for Divorcees and Widows.

"In a divorce, there is a lot of anger, and money is sometimes seen as a good way to get back at somebody," she says.

"There is often a lot of unhappiness associated with divorce, and the last thing you want to think about is money, when it should be the first thing."

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There are numerous steps you can take -- before, during and after a divorce -- to help you quickly rebuild your credit and get back on your feet.

Prepare yourself for divorce
If you think your marriage is heading for divorce, there is one thing you should do immediately, according to Mike Kidwell, co-founder of Myvesta (formerly Debt Counselors of America), a nonprofit credit-counseling service.

"First, you need to get a bank account in your own name -- checking and savings. You don't want your spouse on this," he says. "The reason is, a lot of times when couples go into divorce, one spouse will write bad checks or somehow abuse the bank account which will tarnish the other party's ability to open a bank account on their own."

Get those accounts open and tuck as much money in there as you can to tide you through the coming storm. According to the Department of Labor, a woman's standard of living drops 45 percent in the first year following divorce, while the average man's jumps 15 percent.

"If your standard of living is going to drop, you've got to pay real close attention to things like your credit rating and staying ahead of unsecured debt such as credit cards," says Hannon. "That will be worth its weight in gold down the road."

Typically, one spouse has been the banker for the family while the other spouse may be largely in the dark about financial matters. To no great surprise, the one in the dark is the most at risk financially when things go south.

To avoid becoming the deer caught in the headlights, collect as much information as you can now on every financial aspect of your life. This will be a lot easier to accomplish before the split. Look for balances, transaction statements, contact names, addresses and phone numbers for the following:

  • Joint bank accounts
  • Credit cards
  • Brokerage statements
  • Tax returns
  • Business interests
  • Pension funds
  • Social Security
  • Loans
  • Medical coverage
  • Insurance (home, auto, life)
  • Wills and trusts
  • Marital assets (artwork, antiques, etc.)
  • Mortgage
  • Indebtedness
  • Inheritances
  • Safe deposit boxes

Next, make sure your name is listed on your utility accounts, an item often overlooked by many.

"When you go to get credit, they often look to see if you have a phone number in your name," says Hannon. "If you don't, even if you are listed in the phone book at that number, it can be problematic."

Once you've done your research, it may be a good idea to give copies of relevant documents, statements and appraisals to your attorney for safe keeping. Should you require additional privacy for correspondence during this time, consider opening a post office box or have personal mail directed to the home of a friend.

When the split happens
Once divorce is imminent, your next steps are designed to accomplish three major goals:

1. Make a clean financial break.
2. Protect yourself from further or vindictive spending by your spouse.
3. Lay the groundwork for your new, single credit report.

If you and your spouse are on otherwise cordial terms, you are free to divide your assets in any way you choose. Often, however, this proves unfeasible. There may be children involved, alimony and child support to consider. Hurt and anger often leads to bitter heated battles over the only things left to claim once love has flown. In that case, the courts will ultimately award custody and divide your property and your debt for you.

Your first step when faced with divorce is to run a copy of your credit report.

"You need to see what's on there," says Kidwell. "It's the way to find out what accounts are joint that you need to address now. During and after a divorce, it's a good idea to pull your credit report twice a year, at least."

Next, freeze your joint accounts.

"If you have a joint bank account, ask your bank to freeze the account so that both signatures are required before any transactions can be made," says Hannon. "If you're concerned that your soon-to-be ex is going to run off and really drain your account, you've got to be really cold-hearted about this."

Play your credit cards right
Then contact your credit card issuers. Two reasons: freeze joint cards -- and get yourself one or more new cards in your own name, if possible.

"Inform the companies in writing and call them as well. Tell them you want the accounts closed and that you are not responsible for charges from that point, period," says Hannon. "Then make sure you have a credit card open in your name alone with Visa or MasterCard, one of the major revolving cards. A department store card isn't enough."

Freezing your accounts won't get you off the hook -- only by paying them off will you be able to actually close them. And remember, even if the court orders your spouse to pay off certain debts, you'll still be liable for them if they fail to do so.

If you lack a credit history or have trouble obtaining a major credit card, Kidwell has the solution.

"Look into a secured credit card," he says. "You put up $500 and the issuer will give you a line of credit equal to $500. Typically there is a small annual fee, but the issuers also pay interest on the balance you've paid them. Often, they will give you a larger line of credit than your deposit. What is important about the secured card is to make sure you get one from an issuer that reports to all three of the credit reporting agencies. Not all secured card issuers do."

Before signing the divorce papers, consider one addendum: change of name authorization. Crazy as it seems, many states require your ex-spouse's signature before issuing you a driver's license or other ID in a previous or maiden name. Men who added hyphens during marriage could encounter identity trouble, as well.

A small consolation
Once you've survived the divorce, you'll want to put your own budding financial house in order and get on with living. That includes contacting all creditors with your change in marital status. If you stand to lose health coverage, there may be COBRA forms to fill out or re-enrollment after joint coverage is terminated.

Hannon says don't forget to switch your beneficiaries at this time, too. "That's one mistake people make," she says. "It's sort of a back-of-mind issue. If you're not remarrying, you can put it in your child's name so you retain control but they will inherit it."

If you're new to managing your money or encounter problems with your new responsibilities, counselors such as Myvesta can tailor their services to your needs.

"Some of our clients just need somebody to talk to, they just need a support to know they're doing the right thing," says Kidwell. "You need to establish a game plan that puts you on the right path."

It may be small consolation, but the Social Security Administration has the rarest of rare silver linings for some divorcees. If your marriage lasted 10 years or more, and if you do not remarry, you may collect Social Security benefits based on your ex-spouse's lifetime earnings once you both reach age 62, even if he or she has remarried or has not retired.

"For women in particular, it's a good thing to remember," says Hannon. "It doesn't affect your spouse's payment at all. In fact, they will never know when you start receiving your Social Security checks. But you need to have their Social Security number in hand."

-- Posted: Nov. 28, 2000

 

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See Also
SPECIAL REPORT:
Money and marriage
THE BASICS:
Prenuptial agreements
Financial steps to take when divorce looms (8/25/00)
Joint credit after a divorce (7/28/00)
Protecting your credit in a divorce (4/14/00)
Making a second marriage work financially (1/18/00)

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