What are the financial implications of marriage (and of divorce and re-marriage)? Those who have recently changed their marital status or who are planning such a
change may have important financial and legal decisions to make. These decisions might deal with property ownership, providing for children's welfare, post-mortem
planning, and day-to-day finances.
This Financial Guide will discuss the financial steps appropriate to a change in marital status. Because divorce is sometimes the flip side of a marriage and
often the bridge between marriage and remarriage, it is covered here as well for the sake of overall context. The guide will also briefly touch on the legal issues involved; however, the variations in state law make it impossible to discuss in depth the many legal ramifications of a change in marital status.
Related Guide: For a discussion of the impact of the death of a spouse, please see the Financial Guide: DEATH OF A SPOUSE: Financial Steps You Should Take
How To Prepare Financially For A First Marriage
For the young, newly married couple, the areas of financial concern that will need to be addressed are: (1) life insurance, (2) form of property ownership,
and (3) money management.
When it comes to insurance needs, the basic rule is that you need enough coverage to sustain your family's present income level should you die. If you are the only
breadwinner, or if you plan on starting a family soon, then you will need to purchase life insurance.
Related Guide: Please see the Financial Guide: LIFE INSURANCE: How Much And What Kind To Buy
If you intend to own a residence or other property, or if you and your spouse already own property together, you will need to consider the best way for you
to hold that property. Will the property be held solely by one spouse? By both spouses jointly? Because of the complex legal implications of the various forms
of property ownership, you should seek legal advice about this issue.
It is important to consider carefully how your day-to-day finances will be handled. The new couple should discuss financial goals, resolve differences, and establish a budget and/or saving and investment plan.
Will you have joint bank accounts, separate accounts, or both? How much do you want to spend on vacations? On monthly food bills? Entertainment? Gifts? What
are your long-term financial goals? Do you have a financial plan, even an informal one?
If you don't have a financial plan, now is the time to prepare one. Even if you do have a plan, your changed marital status suggests that you review it.
Related Guide: Please see the Financial Guide: YOUR FINANCIAL PLAN: Getting Started on A Secure Future
How To Prepare Financially For A Divorce
If you are considering a divorce, it is vital to plan for the dissolution of the financial partnership in your marriage. Such dissolution involves dividing the
financial assets you have accumulated during the years of marriage. Further, if children are involved, the future support given to the custodial parent must be planned for.
The time taken to prepare and plan for eventualities will pay off later on. Here are some steps towards that end.
Take Stock Of Your Situation
Make an inventory of your financial situation. This will help you to prepare in two ways:
- It will provide you with preliminary information for an eventual division of the property.
- It will help you to plan how the debts incurred in the marriage are to be paid off. (Although the best way of dealing with joint debt, such as credit card debt, is to get it all paid off before the divorce. Since this strategy is often impossible, compiling a list of your debts will help you to come to some agreement as to how they will be paid off.)
To take stock of your situation, here are the steps you might follow:
- The current balance in all bank accounts;
- The value of any brokerage accounts;
- The value of investments, including any IRAs;
- Your residence(s);
- Your autos; and
- Your valuable antiques, jewelry, luxury items, collections, and furnishings.
- Make sure you have copies of the past two or three years' tax returns. These will come in handy later.
- Make sure you know the exact amounts of salary and other income earned by both yourself and your spouse.
- Find the papers relating to insurance-life, health, auto, and homeowner's-and pension or other retirement benefits.
- List all debts you both owe, separately or jointly. Include auto loans, mortgage, credit card debt, and any other liabilities.
Tip: If you are a spouse who has not worked outside the home lately, be sure to open a separate bank account in your own name and apply for a credit card in your own name. These measures will help you to establish credit after the divorce.
Related Guide: For a system that makes it easy to organize and locate your records, please see the Financial Guide: DOCUMENT LOCATOR SYSTEM: A Handy Aid For Keeping Track Of Your Records
Estimate Your Post-Divorce Living Expenses
Figure out how much it will cost you to live after the divorce. This figure is especially important for the spouse who is planning to remain in the family home
with the children; it may be determined that the estimated living expenses are not manageable.
To estimate these expenses, add together all of your monthly debts and living expenses, including rent or mortgage. Then total your after-tax monthly income
from all sources. The remaining amount is your disposable income.
Related Guide: Please see the Financial Guide: BUDGETING: How To Prepare A Workable Plan
Here are some tips for handling the credit aspects of divorce, both in the planning stages and afterwards.
Cancel All Joint Accounts
First, it is important to cancel all joint accounts immediately once you know you are going to obtain a divorce.
Creditors have the right to seek payment from either party on a joint credit card or other credit account, no matter which party actually incurred the bill.
If you allow your name to remain on joint accounts with your ex-spouse, you are also responsible for the bills.
Your divorce agreement may specify which one of you pays the bills. As far as the creditor is concerned, however, both you and your spouse remain responsible if the joint accounts remain open. The creditor will try to collect the bill from whoever it thinks may be able to pay, and at the same time report the late payments to the credit bureaus under both names. Your credit history could be damaged because of the co-signer's irresponsibility.
Some credit contracts require that you immediately pay the outstanding balance in full if you close an account. If so, try to get the creditor to have the balance
transferred to separate accounts.
If Your Spouse's Poor Credit Affects You
If your spouse's poor credit hurts your credit record, you may be able to separate yourself from the spouse's information on your credit report. The Equal Credit
Opportunity Act requires a creditor to take into account any information showing that the credit history being considered does not reflect your own. If for instance,
you can show that accounts you shared with your spouse were opened by him or her before your marriage, and that he or she paid the bills, you may be able to convince the creditor that the harmful information relates to your spouse's credit record, not yours.
In practice, it is difficult to prove that the credit history under consideration does not reflect your own, and you may have to be persistent.
For Women: Maintain Your Own Credit Before You Need It
If a woman divorces, and changes her name on an account, lenders may review her application or credit file to see whether her qualifications alone meet their
credit standards. They may ask her to reapply. (The account remains open.)
Maintaining credit in your own name avoids this inconvenience. It can also make it easier to preserve your own, separate, credit history. Further, should you
need credit in an emergency, it will be available.
Do not use only your husband's name-e.g., Mrs. John Wilson-for credit purposes.
Tip: Check your credit report if you have not done so recently. Make sure the accounts you share are being reported in your name as well as your spouse's. If not, and you want to use your spouse's credit history to build your own, write to the creditor and request the account be reported in both names. Also, determine if there is any inaccurate or incomplete information in your file. If so, write to the credit bureau and ask them to correct it. The credit bureau must confirm the data within a reasonable time period, and let you know when they have corrected the mistake.
Related Guide: Please see the Financial Guide:
CREDIT REPORTS: What You Should Know-And Do-About Yours.
If you have been sharing your husband's accounts, building your own credit history in your name should be fairly easy. Call a major credit bureau and request a copy of your file. Contact the issuers of the cards you share with your husband and ask them to report the accounts in your name as well.
If you used the accounts, but never co-signed for them, ask to be added on as jointly liable for some of the major credit cards. Once you have several accounts listed as references on your credit record, apply for a department store card, or even a Visa or MasterCard, in your own name.
If you held accounts jointly and they were opened before 1977 (in which case they may have been reported only in your husband's name), point them out and
tell the creditor to consider them as your credit history also. The creditor cannot require your spouse's or former spouse's signature to access his credit
file if you are using his information to qualify for credit.
Tip: A secured credit card is a fairly quick and easy way to get a major credit card if you do not have a credit history. Secured credit cards look and are used like regular Visa or MasterCard's, but they require a savings or money market deposit of several hundred dollars that the lender holds in case you default. In most cases, the creditor will report your payment record on these accounts just like a regular bankcard, allowing you to build a good credit record if you pay your bills promptly.
Consider the Legal Issues
The best way to plan for the legal issues that must be faced in a divorce-child custody, division of property, and alimony or support payments-is to come to an
agreement with your spouse. If you can reach an agreement, the time and money you will have to expend in coming up with a legal solution-either one worked out between the two attorneys or one worked out by a court-will be drastically reduced.
Here are some general tips for handling the legal aspects of a divorce:
- Get your own attorney if there are significant issues dealing with assets, child custody, or alimony.
- Some ways of finding a good matrimonial attorney include referrals from another professional, referrals from trusted friends, or lists obtained from the American Academy of Matrimonial Lawyers. (The address of the latter organization is listed in the last section of this Guide.)
- Make sure the divorce decree or agreement covers all types of insurance coverage-life, health, and auto.
- Be sure to change the beneficiaries on life insurance policies, IRA accounts, 401(k) plans, other retirement accounts, and pension plans.
- Don't forget to update your will.
Tip: Those who have trouble arriving at an equitable agreement-and who do not require the services of an attorney-might consider the use of a divorce mediator. This type of professional advertises in the section of the classifieds titled "Divorce Assistance" or "Lawyer Alternatives."
Division of Property
The laws governing division of property between ex-spouses vary from state to state. Further, matrimonial judges have a great deal of latitude in applying those laws.
Here is a list of items you should be sure to take care of, regardless of whether you are represented by an attorney.
- Gain an understanding of how your state's laws on property division work.
- If you owned property separately during the marriage, be sure you have the papers to prove that it has been kept separate.
- Be ready to document any non-financial contributions to the marriage, e.g., your support of a spouse while he or she attended school, or your non-financial contributions to his or her financial success.
- If you need alimony or child support, be ready to document your need for it.
- If you have not worked outside the home during the marriage, consider having the divorce decree provide for money for you to be trained or educated.
How To Prepare Financially For Re-Marriage
When considering remarriage, it is important to plan for the following:
- Whether property acquired before the marriage will be held jointly;
- How to provide for children from a previous marriage; and
- Whether a prenuptial agreement is necessary to accomplish goals related to either of these issues.
If either spouse has significant assets, it will be necessary to consult an attorney.
As for the estate planning aspects of providing for children from a previous marriage, trusts and/or life insurance are the vehicles most often used.
Tip: Be sure to update your will before you remarry to ensure that your assets will be divided among your heirs after your death in the manner and proportions you desire.
- Gail Liberman, Alan Lavine and Carol Ann Wilson, Love, Marriage & Money: Understanding and Achieving Financial Compatibility Before-And-After-You Say ' I Do', (Dearborn Trade, 1998), ISBN 0793126614.
- Larry Burkett and Michael Taylor, Money Before Marriage: A Financial Workbook For Engaged Couples, (Moody Press, 1996), ISBN 0802463894.
- Catherine Wannamaker, Divorce: A Practical Guide, (Equity Enterprises, 1996), ISBN 0964561506.
- Violet Woodhouse, Victoria Collins and M.C. Blakeman, Divorce and Money: How to Make the Best Financial Decisions During Divorce, (Nolo Press, 1998), ISBN 0873374622.
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