Financial problems are often quoted as a leading cause of divorce in America. While fiscal challenges may have been a big part of your decision to separate, it is never too late to learn how to manage your finances even during a divorce. So, let’s explore some of the pitfalls and how to avoid, or at least minimize, their impact on you and your family post-divorce.
Face Your Financial Truth
As you begin the divorce process, one of the first priorities is to gain a true understanding of all the financial aspects of your married life. Compile documentation for each facet such as income, monthly household expenses, home equity lines of credit, retirement savings, investments, real estate holdings, personal property and credit cards.
You should have a clear understanding of your assets and liabilities. This will help you to make more informed decisions throughout the divorce proceedings. It is important to remember that your commitments to joint creditors, for both secured and unsecured loans, predate any divorce decrees. With that said, you are both still responsible for these debts no matter what your divorce settlement states.
Discuss Household Expenses
For household expenses, try to work with your spouse right away to resolve how they will be paid on an interim basis. Think about the best way to pay the mortgage and other household expenses while separated. Who will be moving out of the home and what expenses will be incurred then? What amount of child support and/or alimony needs to be provided? How will educational expenses, like private school tuition or summer camps, be paid? If you are unable to agree on the division of expenses, then working with a divorce mediator may help you to reach some common ground. Read our previous post: Mediation ABC’s.
Another suggestion would be to work with your legal counsel to request a pendente lite hearing to acquire an interim court order. This will establish a temporary court order that will be in effect until the case is tried or settled.
Manage Credit Card Accounts
Credit card accounts need to be taken care of immediately to limit your debt exposure. During the divorce proceedings, protect yourself by following these steps:
- Pull your credit report from each of the three major bureaus. This includes Experian, Equifax and Trans Union. Identify all open credit card accounts.
- Cap your debt. For each credit card account decide to pay off and close, freeze, remove authorized users, or leave it alone.
- Contact each creditor. Inform them of your impending divorce and notify them of any address changes.
- Follow up and take notes. Make sure that your wishes are being followed by the creditors.
- Protect yourself from identity theft by signing up for a credit monitoring program.
Establish a New Monthly Budget
For most, the reality of divorce is that it significantly reduces the available resources. A tightening of the financial belt is required to avoid serious problems with debt. Developing and living within a new, smaller budget is absolutely critical to emerging from a divorce in good financial shape.
Resist the temptation to borrow money from friends, family, credit cards and retirement funds. Relationships can suffer irreparable damage when debts are not repaid to family and friends. If borrowing money is necessary, try to limit your request so that repaying this new debt does not become overwhelming.
Obtain Legal Representation
Hiring legal counsel is another important element to consider in managing your finances during a divorce. Depending on your situation, you may be faced with either litigation or mediation. Choosing the right divorce attorney or mediator is critical to reaching the outcome you seek. The resolutions your attorney will help you achieve are long-term and will shape your personal and financial life for the foreseeable future. You should use the time in an initial consultation to educate yourself on the key areas of concern for your case. You will also want to determine if the attorney is the right fit for your situation and means.
The divorce process can be devastating to your financial health. When the decision is made to move forward in a divorce, take some time to plan ahead using the steps outlined above. Understanding your financial situation, what your limits are and reducing your exposure will help you avoid the overwhelming financial problems faced by so many divorcing couples.
If you have questions about divorce, Offit Kurman can help. Contact Linda Sorg Ostovitz at (301) 575-0381 for more information.
Credit.com, Divorce Survival Guide (Accessed May 29, 2012) http://www.credit.com/life_stages/overcoming/Divorce-Survival-Guide.jsp
MONEY Magazine, Starting Over Post-Divorce and Deep in Debt, By Walter Updegrave, MONEY Magazine senior editor (Accessed May 30, 2012) http://money.cnn.com/2006/05/22/pf/expert/ask_expert/index.htm
DivorceNet.com, Divorce and Credit Issues, By Douglas J. Davis (Accessed May 31, 2012) http://www.divorcenet.com/states/georgia/gaart_10
ABOUT LINDA SORG OSTOVITZ
Linda Sorg Ostovitz is a family law attorney. Her legal experience spans more than 32 years. In this time, she has served as a leader, educator and advocate. Mrs. Ostovitz holds a prestigious fellowship in the American Academy of Matrimonial Lawyers. Currently, she serves as President for the Business Women’s Network of Howard County, by which she was chosen Woman of Distinction for 2014. Mrs. Ostovitz represents clients in Howard, Anne Arundel, Carroll and Baltimore Counties. Her practice focuses exclusively on divorce litigation and mediation, child custody and access, child support, alimony, business valuation, as well as property and asset distribution. In addition to providing legal representation in court, Mrs. Ostovitz provides mediation services to help families come to a fair and legally-sound conclusion outside of the traditional court proceedings.
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