Money and Divorce

Money and Divorce

Divorce is difficult, painful and fraught with emotion. Learn about the benefits of both parties working together financially.

Before separating

Sit down together and take the following steps before you separate.
  • Pull a joint credit report. This provides a complete picture of your joint debt and uncovers any previously unknown debts.
  • Divide – and conquer – debts. The goal is to leave the marriage without any joint debt. Credit card companies aren’t bound by divorce decrees, and will come after one spouse if the other doesn’t pay. Secure individual loans or credit cards to pay off joint debt, then ensure that all joint accounts are canceled. Doing this before legal separation – while income and assets are still jointly held – makes acquiring these loans easier.
  • Divide assets. “Who gets what” is just as important as “who pays what.” Check the laws in your state regarding property division.
  • Open individual accounts for assets. This action cleanly delineates individual responsibilities and helps establish credit history for a spouse who may not have any as an individual.

Before finalizing divorce

These decisions can be made after separating, but should be completed before finalizing the dissolution.
  • Health insurance. Divorce often leaves one spouse without health insurance; don’t allow this to happen.
  • Wills, trusts, retirement plans, IRAs, life insurance, etc. Changing beneficiaries on these assets must be done by the policyholder, regardless of a divorce decree. You may have to wait until the divorce is final before taking action, but make the decisions now.
  • Social Security. You may be eligible for benefits if your ex-spouse dies; check with the Social Security Administration.
  • Child support and alimony. Alimony is tax deductible to the payer, but taxable to the recipient as income. In contrast, child support is not tax deductible to the payer, but not taxed as income to the recipient. If the separating spouses expect to be in very different tax brackets after the divorce, you may wish to take this into consideration. But there are other issues involved, too. For example, alimony payments frequently cease when the recipient gets remarried, and child support payments may shut off when your children reach age 18. Be sure to look at the whole situation.
  • Name changes. Some states will waive the name changing fee if done during divorce.
  • Taxes. Decide now how taxes will be handled in regard to claiming dependents, head of household status, and the tax deductible status of any child support and maintenance payments.

After Finalization

Three to six months after finalization, check your credit again. Education First FCU SmartScore allows you to set up a complimentary visit with one of our reps to review your credit report and receive free counseling. If you want a higher credit score, you want to make this move.

Taking these steps requires a level of teamwork that feels nearly impossible during a dissolution, and feeling wronged or scared can produce surprising behaviors from people. Protect yourself – and those who depend on you – from the other party’s possible dishonorable actions by having a certified mediator or an attorney review your decisions before they’re implemented.