Separating your finances is a critical part of getting through a divorce. Even though it feels overwhelming, you’ll want to get it done right away. Why? Because as long as your finances are tied to your ex’s you are liable for any debt or bills incurred, even if you weren’t the one swiping the credit card. So how do you go about separating your finances?
Community v. Equitable Property Splits
The first thing you need to do, is get clear on the law in your state. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are the only nine Community Property States. What exactly does that mean? If you live in one of these nine states, you and your ex have equal, shared ownership of any marital property. Your assets get split 50-50.
If you live in any of the other 41 states, you live in an Equitable Distribution State. That means that not all marital property is equally shared and assets will be divided according to multiple factors.
Now you know what kind of state you live in, but what’s the difference between your stuff as a couple and your stuff as an individual? Separate property would be the property you owned before the marriage: inheritance (regardless of when it was received), gifts to you as an individual, etc. Of course, there’s a catch! Separate property can become marital property. For instance, if you owned a house before the wedding but added your ex to the ownership documents once you were husband and wife, that house is now marital property.
Assets acquired during the marriage are considered marital property. This includes savings accounts which are in both your names and your 401k, even if it’s only in your name.
Get a Professional Opinion
Whether or not you need an attorney to facilitate the division of assets will depend on your unique situation. If you and your ex have an amicable relationship despite the split, you may not need to get legal help. If your ex is ignoring you, and just the thought of her makes you want to get out that dusty punching bag, then a good lawyer or divorce mediator will be indispensable.
Even if you don’t think you need a lawyer, it’s a good idea to seek an expert consultation. Financial decisions will have long-range consequences for your life, so it’s important that you’re clear on the facts and know your rights when trying to separate finances after a divorce. It may seem as though you and your ex are getting along great right now but never underestimate the power of money to ruin a good relationship. About debt and divorce.
You Are On the Hook for Joint Debt
You are responsible for any joint debt until you separate your finances. Take immediate steps to stop any additional debt from piling up that might be your responsibility. As attorney Jeffrey Anderson told Fox Business about debt and divorce, “Your creditors are not parties to your divorce. You can put in big, bold letters [in the divorce settlement] that your ex-spouse is going to pay the credit card debt from the joint card, but if the ex doesn’t pay and you send your decree to the credit card company, they’ll likely laugh before they throw it in the trash.”
With that in mind, take steps to protect yourself. an authorized user, see if you can remove her from the account without her consent. However, if you only have joint credit card accounts, all you can do is request a freeze on the account until the debt is paid. At that stage, you can close the account.
Let’s say one of you has agreed to assume a certain amount of debt. Do not, under any circumstances, proceed on good faith. Division of assets – and liabilities – must be in writing. Make sure you have contacted the creditors involved to verify that the arrangements to settle the debts are in place.
Money can turn even the best relationships sour, and getting through a divorce isn’t likely to enhance the relationship with your wife. Don’t forget that joint debt may include any loans you may have co-signed with your ex, as well as your mortgage, home equity lines of credit, and car loans.
Managing the Marital Home While Getting Through a Divorce
The least complicated option, if you have equity in your shared home, is to sell the house, pay off the mortgage and any secured lines of credit, and split the remaining proceeds from the sale.
If you have children, your ex may not want to leave the family home, and you may not want to see your children uprooted. Those are all legitimate feelings but they will complicate the process of separating your finances.
If you and your ex decide against selling the house outright, the spouse who wants to keep the house will need to qualify for a new mortgage and refinance the property. Most mortgages are not “assumable”.
Do NOT just sign the deed over to your wife if you are on the mortgage. Deeding the property to someone else does not remove you from the obligation to make the house payments. Don’t forget, if you’re not living at home, you’ll be paying rent somewhere else or looking to buy. As long mortgage, it will affect your ability to qualify for other loans, like a new house or car loan.
If you and your wife want to get rid of the house, but the property is “upside down”, meaning you owe more on it than it’s worth, contact your lender to see if they will accept a “short sale” of the property. In cases of financial hardship, sometimes the bank will allow you sell the house for the actual value, and will take that amount as payoff for your mortgage, even though the amount is less than the remaining mortgage balance.
Don’t Put Off Separating Your Car Insurance
You went to all that trouble to find the best car insurance, and now you have to separate it. But how? And who gets to keep the policy?
The first thing to know is that neither party can remove the other without consent. The second most important piece is that the person leaving the policy should begin a new one before removing him or herself from the existing policy.
Before you start shopping for a new policy, you need to get a few things sorted out. For instance, who is going to keep the existing policy? Are you getting a discount for bundled coverage? Are your home and cars insured by the same company? Was the policy originally yours before the marriage? You will also need to separate any vehicle titles. Some companies require the policy holder to be the title holder of the vehicle.
For more information on what to consider – and what can go wrong – Check out this Guyvorce article on Why You MUST Review Your Auto Insurance During Divorce.
Your Financial Situation is Unique
There are intricacies to your financial situation that will be different from your friend’s or neighbors. Each divorce is unique, which is why it’s a good idea to consult with a qualified financial planner in the early stages of separating your finances. Your legal counsel may not be the best person to answer complicated banking or investment questions. Even if you hire a lawyer or mediator to guide you through the entire divorce, invest in a consultation with a financial specialist skilled in helping couples with getting through a divorce.
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