Kim Kardashian’s recent split from husband, Ye, has shown us just how unprepared we may become in the midst of a divorce from our partners. None of us get married with the assumption that a divorce is inevitable, and we don’t want to plan our lives accordingly, but in any marriage, you can’t predict what your future situation will be.
However, it is important to protect one’s financial assets after a divorce. Here, an experienced and skilled divorce lawyer can provide insight into the range of options and help craft an agreement that works best for each individual based on their particular situation. With divorce involving both legal and financial components, working with a divorce lawyer can ensure all aspects of the divorce process – including legal documents and paperwork – are handled appropriately.
Let’s talk credit…
One of the most important financial aspects to understand after a divorce is the effect it can have on your credit. While a divorce decree may break down who in the relationship will be responsible for any specific debt, your original loan documents will remain unchanged. Joint credit remains joint credit even after a divorce.
In the eyes of the lender, you are contractually responsible for that loan, and any late or missed payments will still affect your credit. Ideally, your divorce decree will specify that any joint credit accounts will be closed and refinanced individually. If not, this should be done as soon as possible – especially with credit cards where your ex-partner could continue adding additional charges that you will be jointly responsible for!
You can pull your free credit report online at annualcreditreport.com, and review it for any forgotten joint credit accounts that may be lingering under you and your ex-partner’s names.
Remember that store account you opened together three years ago to purchase a new refrigerator? It may still be open, even after it was paid off.
The 4-step process…
Most partners will find themselves living on less income after a divorce. This makes it even more pertinent to assess your new financial situation and make a plan for the future. Leigh Singleton, Director of Financial Education at Monifi, suggests using an easy 4-step process to assist in getting your finances back on track.
1. Assess the Now.
When assessing your current financial standing, Leigh recommends constructing a document listing your assets (banks accounts, investments, retirement funds, etc.) in one column and your outstanding debt balances in an alternate column – this allows you to fully work through all of your financial assets and recognize them in real time.
2. Identify Your Goals.
Take a close look at the document you created and decide what you’d like to change. Are you hoping to pay off your card debt? Save for a girl’s trip to the Bahamas? Start or add to your retirement fund?
3. See Where Your Money Goes.
Track your expenses over the following months. You may be surprised at some of the areas money is sifting through your fingers. Banking apps such as Monifi make it easy to track your expenses by automatically categorizing your transactions for you.
4. Create a Spending Plan.
Use your selected app or spreadsheet to create expense categories such as rent/mortgage, food, dining out, kid’s sports, etc. and indicate a monthly budget for each line item. It may take a few months to stay true to the allocated spends, but don’t despair, change takes time.
Getting your finances on track during a marriage can be difficult, and divorce adds another layer of complications. Creating financial freedom as early as possible, even within a healthy and strong relationship, will assist both partners in the long term. Leigh reminded us “financial freedom doesn’t necessarily mean you have as much money as you need to buy everything you want. What it really means is understanding and planning your financial life.”