In this 2nd part of 2 part post, here are some tips on financial mistakes to avoid in a divorce. Getting a fair settlement is easier to do if you avoid these mistakes.
Forgettable Assets
Some assets are easy to forget, such as pensions, stock options from an employer, accrued sick and vacation pay, the cash value of insurance policies, frequent-flyer miles, prepaid dues (such as annual country-club dues and season’s tickets or passes), and timeshare properties and vacation clubs. These should be addressed as part of the property settlement. In many cases, pensions can be worth more than houses, so make sure you have a qualified financial professional value these and other assets before you sign away your rights to them.
Credit Rating and Debt
It is imperative to protect your credit rating. Here are some tips:
- get a copy of your credit report
- close all accounts that you do not use
- if you don’t already have one, apply for a credit card in your name only
- close all joint accounts and credit cards.
A vindictive or spendthrift ex-spouse can incur debt on your joint accounts and destroy your credit rating during the divorce process. If you’re not able to pay off a joint account in full, ask if you can maintain a balance on it after it’s been closed.
Your credit report will help you discover any outstanding debts that need to be addressed as part of the divorce process. It may be best to pay off joint debts with marital assets, and then each spouse can move forward with a clean slate.
Once your divorce is final, you should use your credit cards sparingly. If you need to establish a credit rating, make sure to pay off all balances on time every month.
If you need to use credit for short-term liquidity, then you may be better off refinancing your home and avoiding maintaining a balance on your credit cards. In the U.S., the benefits of refinancing your home include deductibility of interest and a lower interest rate. You will need to qualify for the mortgage, but spousal and child support are generally included as sources of income to permit a non-working spouse to qualify for a mortgage.
Back to Work or Back to School?
You may have to go back to work to supplement your support payments. If you don’t go back to work now, do you want to wear a fast-food restaurant uniform when you’re in your 60s or 70s? Your property settlement assets should be kept for your retirement.
You have to be realistic about any career changes you make. What are your prospects at your current job? If you go back to school, what can you realistically expect to earn? Will your degree improve your earning capacity? Are you taking courses that will help you secure a position in a growth industry that needs qualified workers, or are you just taking a course because it interests you? Does your chosen career or course of study take advantage of your natural strengths, abilities, and interests? Taking courses you hate to secure a job you’ll hate is not a wise use of time or money. Work with a career counselor or personal coach to figure out the pros and cons of staying put or changing direction.
The Bottom Line
Your lifestyle will change after your divorce. You will have to make some sacrifices. However, if you plan ahead, these sacrifices will pale beside how bright and prosperous your future will be.
In this 2nd part of 2 part post, here are some tips on financial mistakes to avoid in a divorce. Getting a fair settlement is easier to do if you avoid these mistakes. Still have questions or concerns? Call me! No charge for the initial consultation.
