The emotional toll of divorce is tough enough without worrying about the impact it can have on your finances. It’s important, however, to be aware that divorce will affect your financial future – short-term and long-term. Here are six steps to take early on to protect you and your credit rating:
Request and monitor your credit report
First, request your credit report from AnnualCreditReport.com. You’re entitled to one free report from each of the three major credit bureaus each year. Review your credit reports to ensure there are no accounts or debts listed you were not aware of.
Be on the lookout for new accounts an estranged or ex-spouse may open in your name. To safeguard your credit from potential fraud you may want to sign up for Experian IdentityWorks, which is free for members of Texas Legal.
Close Joint Accounts
Joint accounts with your spouse – from mortgages to credit cards—are both parties’ responsibility, even after a divorce, so be sure to close them as soon as possible. When canceling credit cards, be sure they read “closed by consumer” so it reflects more positively on your credit report.
For checking, savings, and investment accounts, change the title from “joint” to “individual” and reassign the beneficiary to reflect your current wishes.
If there are children involved, you may want to keep one joint credit or checking account open for shared expenses, but monitor them closely. It’s not unheard of for an embittered party to move money from the joint account to an individual account or to run-up the shared credit card.
Establish Financial Independence
If you don’t already have bank accounts and lines of credit in your name only, open them now. It is important to begin establishing your financial independence and building a solid credit rating.
Consider opening your new accounts with a local credit union. Unlike national banks, credit unions are not-for-profit institutions and offer their members lower fees, better savings interest rates, and lower loan interest rates.
If you open one or more credit card accounts, then be sure to use the cards sparingly and pay off the balances each month.
Revise Estate Planning Documents
Your former spouse is probably listed as the beneficiary on your will, life insurance, and retirement accounts. Every time you experience a major life change, you need to take a look at these documents and make the necessary updates.
Don’t forget to also revise your living will or advance health directive, and change any powers of attorney that designate your ex-spouse as the decision-maker for you.
Members of Texas Legal can create or update their estate plans each plan year. Be sure to update your estate planning documents soon, delaying this task can cause more trouble down the line.
Create a Budget
Even if one spouse is required to pay child support, it’s likely that both of you will be living on less money after the divorce. Avoid getting yourself into financial trouble later on by creating a budget that’s based on a realistic estimate of your post-divorce income.
Remember, as a single person you’ll now be fully responsible for your own retirement savings and necessary insurance, so be sure to include those in your financial planning. If you have children, you may also need to determine how long-term goals like college planning will be addressed.
Ask for Help
Divorce is often an incredibly stressful event. The last thing you may feel like doing is spending time and energy thinking about money. However, it is important to be practical and thorough, so if you need to, get professional assistance during this time.
Texas Legal members get free access to Balance Pro, which provides many financial resources like budgeting tools, webinars, financial counseling, and workbooks.
With a Texas Legal Membership, you gain access to a wealth of information from Balance, including financial counseling, budgeting tools, webinars, and more.
Not a member of Texas Legal? Join for as little as $28 a month. If you are a veteran or bank with a credit union, your monthly cost could be even lower. Find out what your rate is today.