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10 Steps to a Money-Smart Divorce (Part 1 of 2)

by Norris Law Group on January 13, 2014

divorce_money_penIn the midst of a divorce, “number crunching” is probably one of the furthest things from your mind. Emotions such as anger, anxiety and fear may take over, and you may be far more focused on the past and present rather than the future.

Financial educator Ruth Hayden, author of For Richer, Not Poorer: The Money Book for Couples, concurs: “At least 80 percent of money is about self-management, about emotions, and 20 percent is about quantifying and computing…The counting part is easy; it’s the emotional part that’s hard.”

Money is often cited as a leading cause of divorce, so it may stand to reason that the financial aspects of divorce may not be easy. Jay MacDonald offers 10 Steps to a Money-Smart Divorce at Bankrate.com. The first five appear below:

1. Pull your credit report. Hayden says, “Pull your credit report before the divorce so that anything in dispute can be resolved before the divorce is final. You can request a free copy of your  credit report once a year from all three major credit reporting agencies (Experian, TransUnion and Equifax) from http://www.annualcreditreport.com.

2. Open individual bank, credit card and brokerage accounts. Do this before your divorce is final as well, as it will probably be easier to get credit card and bank accounts in your name while you are still married and share joint assets and debt on credit cards, mortgages and loans. Hayden says this is especially important for women who have never established credit in their own name:  “It’s easier for a 15-year-old to get a credit card than it is for a 50-year-old divorced woman. She just gets deleted.”

3. Close all joint accounts. Divorce is a time-consuming process.  Close all joint credit card and bank accounts—but know that you and your ex-spouse will still be jointly responsible for paying off the balance of all those accounts. Cancel joint accounts in writing and request that credit bureaus know that each account is noted as “closed by customer.” Bankrate provides form letters to aid with this.

4. Keep separate property separate. Any assets you and your spouse brought to the marriage separately, such as real estate, money earned before your marriage, etc., or vehicles (cars, boats, etc.) are yours to take when you leave the marriage. But if you combine separate assets into a joint bank account, they may then be considered joint, or marital, property and will likely be divided per the property laws of the state in which you have your primary residence. Separate and joint debts will be dealt with in the same manner.

5. Consider selling the house. In many divorces, the wife tries to keep possession of the family home.  This, however, can be more of an emotional decision than a financial one.

Ruth Hayden says, “Studies say that women will keep the house and give up the retirement money…It is one of the biggest mistakes women make. The problem with that is, many times she’s not going to be able to afford to stay in this house anyway, and if they’ve been in the house for a long time, she could stand to lose a good share of her capital gains exclusion, which is $250,000 for singles and $500,000 for couples…I recommend that they look seriously at selling that house, even though it’s hard. It’s an emotional tie that ends up strangling the woman. She ends up losing it anyway, and she has given up her retirement money. I ask women to just think a little bigger.”

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County and throughout Utah in the area of divorce. Contact them today at 801-932-1238 or online for a free consultation.

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