Our Guest Post is from Donna Carter who is a CPA and finance blogger who’ll be happy when tax season is over.
Separating from your partner is a time for establishing, or reestablishing, your financial and personal independence. When it comes to shared accounts, mortgages and auto loans, your finances can quickly become an incredibly complex world to navigate. In fact, Business Insider published results of a recent survey that said 31% of those who combined finances admitted to lying to their spouses about spending. Bearing this in mind, it’s critical to take the necessary steps and precautions to divide your shared expenses and financial responsibilities without enduring any negative repercussions.
Create a Post Divorce Budget
Divorce is a time for financial consolidation. It’s likely you’ll have to adjust your budget and monthly spending habits to fit your new lifestyle. Calculating your annual income separate from your partner’s can appear challenging, but you’d be surprised to learn how simple it is to prioritize spending. If you’ll be a new renter, Apartment Therapy suggests ensuring that your yearly payment does not exceed 30% of your annual income. Opt for the smaller cable package and avoid any unnecessary upgrades. Avoid taking out any new lines of credit, and be sure you’re paying all of your utilities on time.
Divorce Decrees 101
It’s crucial you have a full understanding of what a divorce decree is and how it effects your shared finances. During the divorce process, the courts will divide the shared debt through a divorce decree, meaning that one party will take full responsibility for the house while the other party will be responsible for any auto loans, for example, as Credit.com explains. However, do not confuse this as a release of financial obligation. As far as the creditors and loan officers are concerned, this debt is still shared between the two parties equally. Recommend an auto-pay system for such bills so your ex-spouse doesn’t have to remember to pay this bill each month. Maintain online access to the accounts and ensure that timely, regular payments are being made.
Protect Your Identity
Though it may seem unnecessary, protecting your identity during a divorce is especially important. Instead of leaving the safety of your personal credit history and information to chance, protect your accounts and your credit score by employing a management tool that provides regular alerts and updates. Change all of your banking passwords and usernames, in addition to email passwords and any security questions you currently have. Keep an eye out for any suspicious mail or offers you may receive, and immediately report any suspected fraudulent activity. Lastly, review annual credit reports for any unauthorized spending or activity.
Manage Your Shared Accounts
When debt cannot be transferred or a loan refinanced, it is imperative that you and your ex work together to manage the account. Establish a shared online account you both can access without tying it directly to either of your separate bank accounts. Suggest that you make payments on rotation, or go in 50/50 each month. Keep in mind that both parties credit scores are at stake, so the simplest solution is the best solution. Set up alerts for the account that reminds each of you when a payment is due, or if a payment is late. Accept responsibility and keep the finger pointing to a minimum.