BY BEV O’SHEA & HAL M. BUNDRICK, CFP & DAYANA YOCHIM | NERDWALLET
Financial decisions get complicated amid the emotional upheaval of a split. “So many people say, ‘Oh, it’s going to be an amicable divorce,’ and three months later, they are keying each other’s cars,” says Kitty Bressington, a certified divorce financial planner in Rochester, N.Y.
Don’t let your emotions derail your economic well-being. Here are three major areas where you’ll need to make clearheaded decisions — sometimes well before anyone visits a lawyer.
Credit accounts
First, make sure you have an independent credit identity, says money coach Patricia Stallworth, author of “How to Get Divorced Without Losing Your Blouse.” Pull your credit reports and understand every account: Is it solely your account, or a joint account, or are you an authorized user on your spouse’s account? If you have no individual credit accounts, apply now, while you can use joint income to qualify.
Before you divide accounts and balances due, Stallworth advises making a budget based on after-divorce income to see how much debt you can handle. It’s also smart to consult an attorney and a financial advisor familiar with your state’s laws on debt responsibility.
Existing credit accounts — credit cards, car loans and personal loans — can be handled three different ways:
Agree to pay off and close accounts now: Wipe out balances, then close joint accounts and remove each other as authorized users on individual accounts. This cuts out the risk that a spouse will run up charges or fail to pay debt as it’s divided later.
Agree to close now and pay off later: Close joint accounts and revoke authorized user privileges, but leave the balance to be addressed later in negotiations. This stops new charges, but you’re still at risk. Creditors aren’t bound by your divorce decree and may come after you for joint debt if your ex doesn’t pay as agreed. When splitting debt, consider insisting on a balance transfer of your ex’s portion to a new account in his or her name alone.
Do nothing: It is not illegal to leave an ex-spouse on a credit account — it’s just extremely risky.