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Archive for the 'Divorce' Category

Despite split, credit can remain intact

April 8th, 2012, 12:00 pm by dtova

It’s a common misconception that dissolution of your marriage leaves you with a clean financial slate. That hardly ever happens.

Debt is one area that can turn into an ugly, tangled mess if you are not careful.

But if the two of you can work together rather than waging a long and expensive battle throughout the divorce process, there is a better chance of preserving your credit. How? By focusing on strategies that preserve your credit rating, rather than wasting time trying to get even.

Here are some ways to handle credit card debt and avoid common mistakes that can ruin your credit.

Your best-case scenario is to pay off and close all joint accounts before finalizing your divorce. To do this, you may need to sell some assets or use a chunk of your savings or investment accounts.

If you can’t pay off the balances right away, transfer an agreed upon portion of your joint debt onto your own credit card. If you can’t qualify for a new line of credit, ask your family to co-sign it and then transfer the balance.

The worst-case scenario is not being able to split credit card debt up onto your individual cards. Then all you can do is pray that your ex complies with the terms of your divorce settlement and makes timely payments.

But first, do a little homework.

Request credit reports from the three credit agencies; (Experian, TransUnion and Equifax.) You are entitled to a free copy every year and you can download all three from www.annualcreditreport.com.

Write down all credit card debts and how they are titled: whether you are a joint account holder or an authorized user.

As joint account holders you are equally responsible for repaying the debt. Many divorcing couples wrongly assume that their divorce decree relieves one spouse of the financial responsibility by assigning the joint debt to the other spouse. The creditor won’t close your account simply because you had a change in marital status. You could apply for a new line of credit with the same creditor and, if you get approved, transfer your portion of the debt.

If you were an authorized user of your spouse’s card, the credit card company may agree to remove you from the account and transform it into an individual account. All you’ve got to do is ask.

If you are stuck on the account until your ex pays off the balance, monitor payments by asking the lender for duplicate statements.

If you are both drowning in debt and considering filing for bankruptcy, consult with a bankruptcy attorney before you file for divorce.

The bottom line, after a divorce, you want to sever all ties for your joint debt. That being said, I am not advocating that you start blindly selling off marital assets and wiping out bank accounts to pay off debts. You and your spouse need to be on the same page and be completely transparent. Unfortunately, there is always room for financial shenanigans. If you are uncertain, consult a family lawyer to suggest the best course of action.

Mystified by money and want to improve your financial effectiveness? Denisa Tova CFP®, CDFA, MBA is a Colorado Springs-based Certified Financial Planner and a Certified Divorce Financial Analyst. Contact her at DenisaTova.com or email denisa.tova@gazette.com.

Posted in: Credit • Debt Management • Divorce • preserving credit in divorce • splitting debt in divorce | Post a Comment »

Tying up loose ends after divorce

July 4th, 2011, 8:39 am by dtova

Your divorce is finally over! But before you breathe a sigh of relief, don’t forget: your divorce does not end with the divorce decree. It’s time to put your divorce agreements to work and start looking to the future.

To help you move forward and tie up any loose ends post-divorce, here are five things to do to prevent financial mishaps:

1) Remove your ex-spouse from all your accounts.

2) Close all joint bank accounts and credit cards, and open ones in your own name.

3) Re-register investment accounts to your individual names. Update the beneficiaries on retirement accounts and brokerage accounts. When changing the beneficiary for your life insurance policy, make sure it matches up with your final divorce agreement.

4) File and execute the special order to receive your share if you are dividing your spouse’s retirement plan or pension. An attorney generally prepares this legal paperwork, which instructs the retirement plan/pension administrator on how to split the account. Expect to receive the administrator’s distribution instructions within 30 to 60 days after they receive the order signed by the judge.

5) Implement agreements about stock options. Because of the volatility of stock options – making them worth a lot or completely worthless – many divorcing couples choose to divide them 50-50 and share the risk equally.

Name it and claim it.

If you and your ex-spouse jointly own the marital home and mortgage and you intend to keep it, be sure that you:

1) Refinance the mortgage to remove your ex-spouse from the note

2) Execute a quit claim deed to transfer the title to your name

If both of you are on the vehicle titles, make sure to sign over the title to each other.

Retain a healthy credit score

Notify all three credit bureaus of your marital status change and supply your new contact information. In about three months, check all three reports to verify that the content is accurate. Look for any red flags such as your ex-spouse not paying off the debt assumed as a responsibility as part of the divorce settlement.

Recruit a professional team of advisors.

1) If you will receive spousal support, consult an accountant to set up quarterly estimated tax payments.

2) Visit an estate-planning attorney to update your will.

3) Retain a financial planner to help rebuild your finances and plan for the future. You will need to prepare and implement a budget. Your planner/adviser will also help you come up with a plan for your divorce settlement proceeds.

Remember, this is an emotionally vulnerable time and the ripple effect of making impetuous financial decisions can last many years. Avoid this possibility by becoming pro-active in rebuilding your financial future. Stick to sound financial principles to avoid getting into debt by making a major purchase such as buying a home right away and blowing through your savings. Relax and take your time; you owe it to yourself.

Mystified by money and want to improve your financial effectiveness? Denisa Tova CFP®, CDFA, MBA is a Colorado Springs-based Certified Financial Planner and a Certified Divorce Financial Analyst. Contact her at DenisaTova.com or email denisa.tova@gazette.com.

Posted in: Divorce • financial recovery after divorce • financial tips for divorced individuals • post divorce financial planning | Post a Comment »

Divorcing Late in Life?

May 15th, 2011, 9:26 pm by dtova

Divorce at any time is tough. But when you have to unravel your emotional and financial partnership later in life — after age 50 — it is definitely not a slam dunk.

In addition to the usual issues of how to fairly divide up assets and debts, one of the biggest challenges facing divorcing couples over 50 is how to transition into retirement with limited time to financially recover.

As a financial divorce analyst, I see this problem over and over in my practice. So much emphasis is put on discovering present assets and income. Not nearly enough time is spent on looking at the financial situation shortly after the divorce.

Let me highlight just a few key areas of concern.

Know what you need to live on.

Project as accurately as possible what you will need to cover your monthly expenses. Your biggest expense will probably be health insurance, unless you qualify for lifetime coverage as a military spouse. Plug in an exact figure for your health insurance to bridge the gap to age 65 when you become eligible for Medicare.

Consider the family home.

Unless your home is paid for, deciding whether you can handle a mortgage at this time can be tricky. If you have minimal income and will have to rely mostly on savings, you will really need to crunch some numbers to make sure you can support a new house payment and the cost of upkeep.

If you are 62, you may be eligible for a reverse mortgage. Consider this option if your cash flow is especially tight and your only savings is the equity in your house.

Know how far your retirement savings will stretch.

This is especially important if you’ll have to tap your savings to cover your bills after divorce. A divorce financial professional will be able to show you the financial impact of dividing your assets. This will give you clues when you are trying to decide if you should get less in retirement and keep the house or the other way around. You can find Certified Divorce Financial Analyst in your area at http://www.institutedfa.com.

If you are not quite 59 ½ and you are heavy on retirement accounts and light on cash accounts to divide up, your financial adviser may work up a plan for you to start tapping your IRAs earlier. (See my previous article about an IRS exception that allows you to pull money out of your IRA before age 59 ½ without the 10 percent penalty. Remember, it has to be set up according to the guidelines in the IRS Code Section 72(t).)

Be careful handling debt.

First, you need to list ALL debts. The couples I work with often don’t remember every single credit card — including department store cards — especially if they haven’t used them for awhile. Order your credit report to get a comprehensive list of your cards, even those where you are only an authorized user.

Ideally, you will pay off all debt before the divorce is finalized, or at least separate your debt and remove each other from liability. If your name remains on a credit card that your spouse is responsible for paying off, know that the creditors could come knocking on both of your doors, despite what your divorce decree states.

I know firsthand how difficult this transition is emotionally, but you must keep your financial head on straight. The decisions you make now will impact the rest of your life.

Mystified by money and want to improve your financial effectiveness? Denisa Tova CFP®, CDFA, MBA is a Colorado Springs-based Certified Financial Planner and a Certified Divorce Financial Analyst. Contact her at DenisaTova.com or email denisa.tova@gazette.com.

Posted in: Divorce • Late life divorce | Post a Comment »

Money Doesn’t Have to Be the Root of a Failed Marriage

February 28th, 2011, 8:08 am by dtova

Financial disagreements can take a toll on marriage. As a divorce financial analyst and a certified financial planner, I am in a unique position to see both sides of the argument. I work with people when they decide to divorce, and I also work with couples who want to address their financial issues and prevent blow-ups in the future.

If you feel like money is at the root of your relationship problems, try these tips:

1) Set some ground rules. Don’t let money talks end in shouting matches.

Devote a few minutes of uninterrupted time to discuss money each month.
Agree to be fully present during these conversations.
Agree to disagree.
Talk about your needs rather than blame your partner.

2) Bring transparency into the relationship. There is often a feeling that the partner is not contributing their fair share or divulging all of their finances. This can lead to a sense of distrust and despair.

Create a transparent financial picture. It can be as simple as sitting down and listing all of your expenses, income, debts and assets. Once you know how much money you have and where it is, make a joint plan to contribute toward your common goals.

I can’t count how many times I have done this simple exercise with couples. It’s amazing how — even in long-term relationships — one partner is surprised to learn that the other has an old pension or a 401(k) plan.

3) Find common ground. Remember that you each bring a unique attitude about money to the relationship. You will need to honor both of your needs. For example, you may have a need for financial independence. A compromise could be to put money into a joint bank account for household bills. Then, each partner pays their own personal expenses from a different account. This way, you are both contributing toward your joint goals and at the same time maintaining a sense of financial independence.

Here’s how it might look:

Household Bills $4,000/mo

(mortgage, groceries, medical expenses)

His expenses $325/mo

(gym membership, clothes, golfing)

Her expenses $350/mo

(personal care, clothes, wellness)

4) Discuss how to handle existing debt in a new relationship. It is not uncommon, especially in second marriages, to bring existing debt into a new relationship. This is something couples should discuss immediately.

Student loans are a classic example. Next to a mortgage, student loans are typically the biggest chunk of household debt.

Let’s say Sheila has a lot of student loans. She has been chipping away at the balance for years without seeing much of a dent. Sheila is in a serious relationship with Jack, and they are considering expanding their family. It will be important for them to discuss in advance how to handle the student loan debt while Sheila is on maternity leave or stays at home even longer with their child. Jack will have to pick up the payments and may have to put his lifelong dream of starting a business on hold. Sheila and Jack need to have a good discussion now about how they will coordinate existing financial obligations with career and family plans.

Money really doesn’t have to be the root of a failed marriage. With a little planning and a lot of transparency you can make your financial story part of the overall story of success in your partnership.

Mystified by money and want to improve your financial effectiveness? Denisa Tova CFP®, CDFA, MBA is a Colorado Springs-based Certified Financial Planner. Contact her at DenisaTova.com or email denisa.tova@gazette.com.

Posted in: Divorce • Money & Marriage | Post a Comment »

Splitting the house in divorce

February 21st, 2011, 7:30 am by dtova

Question: We are in the middle of a divorce and I am trying to decide if I should keep the house. How do I decide? If my husband keeps the home, will I be able to qualify to buy a home in the future?

—Janet V., Colorado Springs

Answer: Let’s break this down into two parts: keeping the home or buying a new one.

The first thing to consider if you want to keep the house is whether or not you can afford it. If you are both currently on the mortgage, you will have to refinance the loan in your name. So your first homework assignment is to contact a mortgage planner and find out if you qualify to refinance the house.

The lender will look at your credit score and your income. If you expect to receive child support and spousal support, these are also considered sources of income for qualifying purposes. But you will have to show to the lender that you have received three or more month’s worth of payments (many now ask for 12 months) and that this income will continue for at least three years.

Let’s assume that you qualify to refinance the loan in your name. You are halfway there. Once you find out your new house payment, you will need to add to it utilities, repairs, cost of upkeep and other related expenses. Do you really want a home of this size? Do you intend to keep it for awhile?

Once you come up with a fairly good estimate of the total monthly cost of your home, plug that number into your post-divorce budget. Remember, child support and spousal maintenance will not last forever; they are only temporary sources of income. Make a plan now for how you will replace this income in the future.

If you are unable to refinance the loan in your name right away and your spouse agrees to stay on the mortgage, he should know that he will be equally responsible for the loan until you are able to refinance. In other words, if you experience hardship down the road and your home goes into foreclosure, your spouse takes the hit along with you. Same deal if the roles are reversed and he keeps the house but your name remains on the mortgage.

Now to the second part: whether or not you will qualify to buy a home after divorce. This assumes that your husband received the marital home in the settlement or you sold it and split the proceeds.

Again, it all boils down to the health of your credit score and the size of your income.

I often see bruised credit scores, limited income and wiped-out savings as a result of a breakup. I advise folks not to rush into any major investments or purchases for at least six months to a year after divorce. That will give them time to rebuild credit scores and improve their financial situation.

Divorce is never a financial slam-dunk. Each circumstance carries its own unique challenges that can be tricky to navigate successfully. Consult a financial professional specializing in divorce or a family law attorney to make sure you come out of this with your head above water.

Posted in: Divorce • dividing your home in divorce | Post a Comment »

Too broke to break up? Economy forces some to stay together

July 19th, 2010, 7:33 am by dtova

Tough times can make couples more financially dependent on each other, which could keep unhappy couples together. As a certified divorce financial analyst and a financial planner, I see this in my practice. The economic stress adds fuel to an already emotionally difficult situation such as divorce.

Can you afford to divorce? You first need to understand the financial impact of dividing one household into two. Here are questions to ask yourself as you look at the options.

1) How much money will I need to live on post divorce? Create a realistic, post-divorce budget, breaking it down into three categories:

Determine what you will need to survive — basics such as food, shelter, clothing, insurance, minimum credit card payments and medical.
Decide what makes your life livable — such as hair, nail and beauty treatments, cable, dining out and entertainment.
Eliminate or drastically reduce creature comforts. In times like these, you just can’t afford the luxury of these pleasing yet unnecessary items.

Add up the list of all potential sources of income. This includes salary, child support, maintenance and more. Subtract taxes and budgeted living expenses from total income to determine whether you will have a shortage of cash or money left over each month. Since you cannot spend more than you bring in, the budget is an important piece of this puzzle.

2) Should I keep the house or take more of other assets? Create a desirable property division scenario and compare it to a budget to determine if you can afford to stay in the house or refinance to buy out your spouse. If you are thinking of selling the house, include selling costs in your calculations.

3) What will my financial situation be like in three to five years after the divorce?

Project out how long your savings may last you. This is crucial if you need to tap into investment or retirement accounts to cover any monthly cash shortage.

If you must tap into retirement accounts, remember that taxes are embedded in all retirement funds. Account for taxes, plus the 10 percent IRS penalty, when withdrawing retirement funds before age 59 ½.

The double whammy of cash flow limitations and the fluctuating value of investments calls for creative solutions. A realistic, forward-looking budget, combined with a well-thought out division of property, could save you money and make life easier in the long run. Remember, you have only one chance to make the right decision.

Mystified by money? Ask Denisa and improve your financial literacy. Denisa Tova MBA, CFP®, CDFA is a Colorado Springs-based Certified Financial Planner and CEO of DaVinci Financial Planning. Submit financial questions to her at denisa.tova@gazette.com.

Posted in: Divorce • Life Cycle Planning • Certified Divorce Financial Analyst • Divorce • divorce planning • financial issues of divorce • mediation | Post a Comment »

Archive for the 'Divorce' Category

Despite split, credit can remain intact

Tying up loose ends after divorce

Divorcing Late in Life?

Money Doesn’t Have to Be the Root of a Failed Marriage

Splitting the house in divorce

Too broke to break up? Economy forces some to stay together

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