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Important Financial Tips During Divorce

couple talking to a professionalAnyone who have been divorced at one point in their lives can attest to the need for financial tips while going through the process. This is a bitter time for any couple and in most cases, you will be battling to get as much of the conjugal properties and ownership that you once shared.

The divorce statistics in our country is not something to be proud of. According to the 2011 statistics in the Census.gov site, out of a population of 250,392,781 million (15 years and above) in the country, 11% are divorced. The highest percentage of the divorced are during the age of 55 to 64 years old for men (16.4%) and women (20%). In most cases, the divorce rate is said to be half of the marriage rate annually. That means for even two marriages each year, one couple is filing for divorce.

Apart from the obvious emotional and psychological effects of a marital separation, you also need to know the implications that it will have on both of your personal finances. In fact, this is usually the reason why divorce proceedings last so long. It is true that divorce ruins credit – specifically your credit report. You are more in danger especially when your spouse racked up a lot of debt while you were together.

Money is the leading cause of divorce

There are many reasons why couples end up in divorce. However, the most prominent of them all involves money. It seems that getting financial tips could have served the couple better while they were still married. It may have helped save their relationship had they sought financial advice.

Based on an article in DivorceResource.com, it is said that financial disagreements play a big role in the downfall of a couple’s relationship. The study was conducted in 2009 by Jeffrey Dew (Utah State University). His study revealed that:

  • Couples who disagreed about money once a week have a 30% higher chances of getting a divorce as compared to couple who disagree only a few times a month.

  • Couples who disagree about money less than once every month has a 30% to 40% increase in the chance of filing for divorce.

  • Among the financial disagreements include debt, spending habits and high costs of living.

Most of the time, couples bring in debt into their marriage. The two common debts are student loans and credit card debt. A lot of people are hesitant to discuss money matters with their partners before marriage and that raises a lot of realizations when they are already together. Things like who will pay for what debt, how to budget their household finances, who will make the financial decisions – these are all important topics that needs to be talked over by any couple. Those who fail to communicate this usually end up feeling bitter, resentful and prone to blaming each other for any financial difficulty that could arise.

Financial aspects in your life that is at risk in divorce

While you may be reeling from the shock of your failed marriage, you need to clear your head to find some financial tips that will keep your spouse from taking your money. There are various financial risks that is involved in your divorce and that has to be something that you need to work on now. Believe it or not, you may still be in danger of being affected by your ex-spouse when they get in trouble with their finances. A property that went to you after the divorce may still be subject to repossession if you fail to protect yourself.

Here are two of the important financial implications that can change when you get a divorce.

Taxes

When you get married, you get to have a lot of tax credits – especially when you are the breadwinner in the family. That will change when you file for divorce. One of the things that you need to find out is who will claim their child on their tax return. There are specifications like the support and the living arrangements that will determine who will get this tax break between the couple.

Not only that, any property that the couple will decide to sell and split between them may be viewed by the IRS as a taxable income. You need to be careful about these decisions. Transferring a property may not be taxable but if it will be part of a settlement – it may be tax accountable in the future. For instance, if one of the properties given to your ex-spouse is sold in the future, you will also be taxed on the profit of that sale. This is true even if you had no participation in the transaction because the IRS views you are a joint owner – since you purchased it jointly. Make sure you clear this up so you can disassociate yourself entirely to avoid negative implications in the future.

Division of property/assets

The last of the two financial tips will involve the accumulated properties and assets while the two of you were married. In most cases, the division of the property will depend on the value of the item. If the two of you cannot agree to divide what you own, the easiest course of action will be to sell it and divide the proceeds between the two of you. That division will be according to the percentage that will be agreed upon. While this is easy, remember that this will be taxable as an income.

If you want to avoid being taxed, the best course to follow is to take your pick among your properties and assets. In doing so, you need to consider how that property or asset will be valued in the future. For instance, choose an asset that will grow in value over time instead of one that will depreciate.

What should you do when you separate from your spouse

Divorce with debt becomes all the more complicated so you really need to read a lot of financial tips to help settle your financial difficulties as you say goodbye to your marriage. Given that, here are some of the things that you need to take care of immediately when you know that you will be going through a divorce.

  • Get legal advice. This is the first thing that you have to do. Look for someone who can professional provide you with legal advice about how you should proceed. Among the things that you need to discuss are the state laws and the implications on your children, property and assets.

  • Open a separate account. The most difficult part of a divorce is separating what is both under your names. It is best to just remove your money from your joint account and open one under your name alone. Make sure to check with your lawyer to ensure that your actions will not be held against you in court. If you both have credit cards under that joint account, it is time to cancel that to avoid your ex-spouse racking in debt that you may be held liable for.

  • Update important documents. We are talking about any beneficiaries that you have or something similar. You can remove your spouse there and just include the name of your children.

  • Child support. It is also important, especially for women, to file to child support to ensure that their husbands will follow through with their financial support. This is not always inclusive of divorce proceedings so make sure you discuss this with your legal counsel.

These financial tips are all generic and may or may not apply to you so it is really best to get your own legal counsel to tell you the right course of action in your divorce. You should also do your own research to ensure that you will know what to expect. There are free legal information on sites like NOLO.com that you can go to so take time to learn what you can about divorce.

What To Do If Divorce Ruins Your Credit

arguing coupleGetting divorced can be an emotional nightmare. We know of couples that are still fighting three years after their divorces were final. It’s just never easy splitting up. Plus, the two of you may have owned a house or even a second home, have accumulated investments and created retirement funds that must be divided.

Common property versus equitable distribution

If you’ve already gone through a divorce you know whether you live in a common property or equitable distribution state. The common property states include California, Oregon, Arizona, Nevada, Texas, New Mexico, Louisiana, Wisconsin, Idaho, and Washington. These are states where any assets accumulated after the marriage are to be divided 50/50. In comparison, if you live in an equitable division state, your assets are supposed to be divided that way – equitably. As you might guess, it can be much harder to divide up assets in equitable division states. In fact, how you divide your property often ends up being decided by a judge.

The same is true of debts

In community property states, all debts that were created after the marriage are also supposed to be divided 50/50. If you live in an equitable distribution state, how your debts are handled is the same as your assets – generally through either negotiation or as mandated by a judge.

Here’s how divorce can ruin your credit

The problem is that no matter what you and your ex spouse might decide regarding your debts, your divorce decree does not supersede them. In other words, whether it’s a credit card, auto loan or home equity loan, creditors don’t recognize what the court ordered each person to pay. What happens in many instances is that the person who agreed to take care of a debt simply fails to do it. We read recently of one woman whose husband had agreed to refinance their mortgage within 90 days and get it into his name alone. However he did not do sp. When the home eventually went into foreclosure, his late payments and even the foreclosure itself were reported on the woman’s credit reports, which totally trashed her credit.

How to prevent this

If you are going through a divorce or believe you will be getting divorced in the near future there are steps you can take to protect you from having your credit ruined.

  1. Refinance any joint installment loans into just one person’s name. This would include home loans and car loans. This means that one of you is actually buying the asset from the other. If you can’t do this because of financial constraints, the best thing you could do is sell the asset and split the proceeds. It’s just much easier to divide cash than to divide a house or automobile.
  2. Close any jointly held credit cards. This is not something you would want to do unless you’re getting ready for a divorce because it will have a very negative effect on your debt-to-credit ratio and would lower your credit score. Once you close jointly held credit cards you could then have the credit card company re-issue you a new card in just your name. That way, you’ll still have the credit card if you need it and won’t be responsible for anything your ex spouse does or doesn’t do.

Understand the reality of credit card debts

The reason why it’s so important to close any jointly held credit cards is because the credit card providers are not legally obligated to recognize divorce decrees. It doesn’t matter what the two of you agreed to in your divorce settlement. If your name is on a credit card and your ex-spouse fails to make the payments that he or she had agreed to make, the credit card company will come after you.

Here’s a short video with more tips about dealing with credit card debts in a divorce.

What you could doWoman holding glasses in right hand with left hand to her head looking worried

In the sad event you get stuck with a bunch of credit card debt that your ex-spouse failed to pay, there are actions you can take though none of them will be very pleasant.

  1. Pay off the debt. If you owe less than $5000, your best bet might be to just buckle down and pay off those credit card debts
  2. Get a second job. Do your owe more than $5000? Then your best choice might be to get a second job and use the money you earn to pay off those debts.
  3. Borrow the money. If you were able to get a debt consolidation loan, you could use the money to pay off the credit card debts. You would end up with just one monthly payment that should be dramatically less than the sum of the credit card monthly payments you’re currently stuck with.
  4. Take money out of a retirement fund. If you have a 401(k) or IRA that you were able to keep, you could borrow money from it and pay off those credit card debts. This can be a very good option because while you would be required to pay the money back, you would be paying it to yourself – along with the interest you would be required to pay.
  5. Snowball your credit card debt payments. This is where you first focus on paying off the credit card that has the highest interest rate, which then frees up money you can use to pay down the debt with the second highest interest rate and so on.
  6. Create a debt avalanche. This works about the same way as snowballing your debts except you begin by paying off the credit card that has the lowest balance first and then move on to the one with the second lowest balance. Many experts prefer this option, as when you see that first debt completely paid off, it can be a strong motivator to stay on your plan.
  7. Go to a consumer credit counseling agency. If you were to choose this option, you would get professional help in paying off your debts. You would be assigned a counselor that would review your financial situation and help you develop a debt management plan.
  8. Negotiate with your creditors. If you are about six months behind on those credit card payments, you might be able to negotiate very favorable settlements with your creditors like for $.50 on the dollar.
  9. Declare bankruptcy. While this would leave a very black mark on your credit reports it is one way to get rid of all those credit card debts and get a fresh start.

Surprise – You Might Want to Pay Off Your Ex’s Credit Cards

man holding multiple credit cardsDivorces can get nasty. Very nasty. Even if you live in a community property state where everything, including your debts, is supposed to be divided up 50-50, it rarely works that way in practice. It can be the worse if you live in what’s called an equitable distribution state. When this is the case, kitty bar the door. This is because everything is negotiable including what happens to your joint credit card debt.

What happened to my friend

I have a friend who got divorced while there was $100,000 remaining on a home equity loan. He had promised to take responsibility for half of this and mailed his portion of the payment to her every month. The agreement was that she was then to make the payment using an automatic payment program at her bank. Unfortunately, she somehow muffed on a few of these payments. As a result her credit score dropped dramatically and so did his.

The net/net

Without getting into all the nitty-gritty, suffice it to say that he was ultimately able to persuade his ex to refinance that line of credit. Unfortunately she was unable to do so because of her low credit score. When my friend could no longer stand it, he discussed this with a friend who advised him to start managing both his and his ex’s credit.

Could not directly affect the outcome

My friend soon learned that 35% of a credit score is based on payment history or how well he and his ex handled their credit. There was nothing much he could do to affect that is except to keep reminding his ex-spouse that she should make her payments on time. But of course, he could not control this.

Credit utilization

A second important factor in computing credit scores is called credit utilization. In fact, this accounts for 30% of a credit score. This is an area where my friend could affect his score because was near the credit limits on all his credit cards. What he learned is that credit utilization is based on the amount of credit he had used versus his total credit limits. This is called the debt to credit ratio. For example, if he had total credit limit of $50,000 and debts of $30,000, his ratio would be 60%, which would be much too high. When my friend learned what a mistake he had made, he immediately brought his balances down to zero and his credit score increased dramatically.

Sent a note to the credit reporting bureaus

My friend next wrote to the three credit reporting bureaus and explained that due to a misunderstanding over automatic debits between his ex-spouse and her bank, there were a number of payments reported late to the credit bureaus over which he had no control. In a few months, his credit score was 776.

Didn’t help her score

Of course, this did not help her credit score because credit scores are not transferable. She needed to do a refinance of the loan but her credit was still stuck in the mid 650s. Beyond the late payments, her problem was a $7500 balance spread over a few credit cards that she was required to carry because she was unable to pay them off. This, of course, played a major part in reducing her credit score. My friend ultimately agreed to pay off his ex’s credit card bills and had her write the credit bureaus explaining about the late payments.

What he accomplished

What this accomplished is that my friend’s credit score increased, he is now in charge of his credit score and he and his ex are still friends.

Not for everyone

Don’t take this to mean that if you have credit card debt left over from a former marriage that you should rush out to pay it off. But it does mean that, depending on the circumstances, you and your credit score could both get ahead of the game if you were to pay off some or all of that debt.

Your Spouse Might Be Dead But His Debt Could Linger On

Woman holding glasses and reviewing credit card statementDid you know that a credit card company could come after you years after your spouse had died? It’s true and it’s also a lesson as to why it always makes sense to get letters from your credit card company acknowledging that your accounts had been closed.

They can always come after you

While credit card debt is considered to be unsecured debt it is a special kind of debt in that it cannot be erased by either death or divorce. I’ve read stories of people who had given an ex-spouse some asset (such as equity in the house) in return for which, he or she agreed to take responsibility for paying off all credit card debts. But then, a few years later the ex-spouse stopped making the requisite payments and guess what? The credit card company started coming after the other party.

The worst case scenario

The worst-case scenario is what happens after a divorce if the ex spouse dies. No matter what was spelled out in the divorce decree, the past can come back to haunt you. If the credit card was in both your names, the credit card company can come after you for whatever balance was remaining on the card at the time of your ex spouse’s death, plus the accrued interest charges. If this happens to you, you only have two choices. You can either pay off what’s owed or suffer what happens with a bad-debt write-off.

The lessons to be learned

First, if you go through a divorce make sure you get a tight agreement that spells out what accounts will be closed. Then follow up by requesting written confirmation. With most credit cards, either party can shut down a joint account since both would be liable for any charges. Don’t rely on your about to be ex-spouse to take responsibility for closing any joint accounts. If you believe there are balances owed on any of the credit cards, make sure the accounts are closed so they will not continue to accumulate interest charges.

Get your credit report

If you get your credit report from one of the three credit reporting bureaus (or better yet, from all three) you will be able to see what accounts are still open and any balances owed. You can get your three credit reports simultaneously by going to the website www.annualcreditreport.com or by contacting the three credit bureaus – Experian, Equifax and TransUnion.

You may need to get an attorney

If a credit card company does come after you for an old debt from when you were married before or because your ex spouse had died, things can get complicated cat. So it might make sense to hire an attorney to help you. The credit card companies will try to hold you responsible for any debt via the ex spouse’s estate. It can be even more complicated if you’ve remarried and taken on your news husband’s name and moved around several times. This means that credit information on the account can actually be reported to an old, unused name and address. In this case, you wouldn’t know that interest charges were building up month after month until the you received a huge bill from some credit card company you thought had been paid off years ago.
It’s always a good idea to get your credit report

Even if you’re not having a problem with old debt you don’t feel is even yours, it’s a good idea to get your credit report at least once a year. It’s what your credit score will be based on. You could have an error on one of your reports that’s dragging down your credit score and wouldn’t know about it unless you got and reviewed your reports. You’ll find these reports are not very much fun to read but it could be well worth the time if you do find a serious error and get it deleted from your file.

Divorce With Debt – What You Need To Know

Divorce can be one of the worst things to happen to you. I know one couple that divorced two years ago and the husband still hasn’t recovered. When both parties want the divorce, both can walk away feeling okay or in the words of the rock group Chicago, “feeling better every day.” However, with many divorces come sadness, anger, guilt, frustration, depression and grief. It that’s not enough there can also be the haunting specter of divorce with debt.

Dividing your property can be easy or toughnew life after divorce

The first thing that most couples think about when contemplating divorce is the children–if there are any. The second thing is the couple’s property and how it will be divided. This can be very easy or very difficult depending on the assets involved. Young couples that have few assets worth fighting over can usually reach a settlement fairly quickly and without much anger. Middle-aged couples may find it more difficult to divide their assets, as there is much more at stake. There may be 401(k)s, several automobiles, equity in their home, maybe a vacation home, a boat, multiple savings accounts, investments and even more.

The forgotten element

While couples generally think about their kids and their assets, they often forget about that nasty phantom called debt. Again, this may not be much of a problem for young couples as most don’t have much credit card debt. But couples in their 40s and 50s can have amassed a pile of secured and unsecured debts. There is usually a mortgage, credit card debt, automobile loans, maybe personal loans and even medical bills. I read recently that the average US household has credit card of $15,956. Since this is an average, you can bet that some households are carrying much more debt than this.

Why divorce with debt can be so troublesome

The first problem with debt is that nobody wants to get stuck with. It might be relatively easy to trade assets, as in “I’ll take the furniture and you can have the travel trailer.” But is much harder to trade debt. For that matter, the question of who pays which debts often depends on the state where you live. If you live in a community property state such as California, Idaho, Nevada or New Mexico, the law says that all debts are held equally. This means you will each have to pay 50% of your debt. It doesn’t matter whether you ran up the debt, your spouse was responsible for it or you were both responsible–you will still have to find a way to split it 50/50. As you might guess, this can lead to a lot of ill will if one of the two partners is forced to pay 50% of the debt on credit cards that were in the other’s name.

Equitable division states

Debt is handled differently if you live in a non–community property state–usually called an equitable division state. In this case, the court will try to use divide your debt in a way that’s fair and equitable to the both of you. However, don’t mistake the word equitable for the word equal. In some cases the court may order one of the two principles to pay off all the debt but awards that person more of the assets to make up for this.

Other ways to handle your debt

In addition, there are other ways to handle divorce with debt. You can agree pay them all off now. You might agree to be responsible for all the debt with the agreement that you will get more of the assets in compensation. Finally, the two of you might agree take equal responsibility. Of course, it may take serious negotiations and some very bad feelings before you can agree to one of these alternatives.

The other big problem

The other big problem in divorce with debt is that if your partner agrees to “hold you harmless” for repaying your debts, this is only binding between the two of you. This does not include third parties, including credit card companies who are not bound by divorce decrees. If your spouse can’t pay off the debt or files for bankruptcy, the credit card companies can and will most likely come after you.

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