Divorce lawyers see it all: infidelity, midlife crises, money woes, couples who simply grow apart.
People split for all kinds of reasons, and no two divorces are exactly alike. But no matter how devastating the break-up, there is one reality all soon-to-be-divorced people must face. You're suddenly single, and you shouldn't wait until the ink dries on divorce papers to protect your financial security.
Here are five smart money moves you can make to protect yourself in case the separation turns ugly.
1. Get Your Own Bank Account
If you've never had your own account, get one now. "A separate bank account thwarts a spouse from finding out exactly how you spend your money prior to divorce rearing its head," says Raoul Felder, a celebrity divorce attorney whose clients have included former New York City mayor Rudy Giuliani; Larry Fortensky (ex-husband of Liz Taylor); David Gest (ex-husband of Liza Minnelli) and Broadway producer David Merrick.
Felder notes that angry spouses can't touch a separate account without a court order.
If you receive direct deposit of your paycheck, redirect those funds to the new account. (Keep in mind that a judge could later deem those earnings a marital asset.)
Accounts in your name alone that were opened before your marriage are different. Many states, including New York, where Felder is based, consider those accounts separate property. Make sure not to co-mingle these separate funds with marital funds, Felder says.
You can't hide money or shield money from your spouse without breaking the law, but you can try to temporarily separate incoming cash so your spouse can't abscond with everything.
2. Be Credit-Smart
Even if your separation is friendly, you need to protect your credit.
Start by making sure you have credit of your own. If you don't have a separate credit card account, get one to establish a solo credit history.
Next, address your joint debts. A divorce may end your marriage, but it won't end your joint credit history or obligations.
Take inventory of all accounts on which both of your names appear, including credit cards, mortgages and car loans, and notify the lenders of your upcoming divorce. "I have seen a bitter spouse run up credit card balances and even fake a mortgage application,'' says Suzanne Low, a certified financial planner and attorney with Lassus Wherley in Bonita Springs, Fla. "Divorce is difficult enough without having your credit ruined.'"
Expect to be held responsible for the debts incurred on joint accounts during the marriage. These debts would be split or negotiated during divorce proceedings, but you shouldn't wait to establish an independent status.
Ask the credit card companies to take your name off joint accounts, and state that you don't want to be held responsible for future charges. Better yet, ask your spouse to agree to close joint credit lines, which would abolish an important financial link of your marriage. Together you can pay the remaining balance from your joint savings.
Mortgages are more complicated, and you won't be able to do much until the marriage's assets are officially split. But if you do end up with the house after the papers are signed, refinance the mortgage in your name alone. If your spouse keeps the house, make sure there's a written agreement that the spouse will refinance, taking your name off the mortgage. Otherwise, you could be held liable for payment defaults.
As an added safety net, write a letter to the three major credit bureaus explaining that you're going through a divorce and will not be responsible for new debts incurred by your spouse. Ask that the letter be added to your credit file. This isn't a sure-fire protection, but you'll have an on-the-record accounting of your credit-related concerns in case problems arise.
3. Get Advice
Making hasty investment decisions or selling a home in a rush is unwise. Rather, hold off on making major life decisions until you start to adjust to your new life.
Put your efforts into finding trusted advisors. While friends and family offer emotional support, they also may offer well-meaning money advice. Don't take it.
Instead, turn to trained professionals such as financial advisors, experienced divorce attorneys and accountants for a thorough, objective analysis of important financial decisions and to understand your rights and duties.
Even if you're separating and not sure a divorce ultimately will take place, you need a written separation agreement to spell out what will happen financially, at least for now.
"If your spouse has an attorney write up an agreement, it is important that you have your own independent attorney review it and make sure you are protected," Low says. "Don't be penny-wise and pound-foolish when it comes to getting this critical advice."
4. Reevaluate Your Budget
A separation or divorce will force you to revamp your spending plan.
Your expenses may increase significantly in the short-term, especially if you and your spouse are paying for two households. Cash is vital, and you want to have enough in the bank to help cover these additional expenses.
On your own, you might spend more on social outings. You'll still have regular living expenses, and those may be higher now that you're on your own. "People spend more than they really believe they spend, so we suggest initially to the clients to keep a notebook recording all their expenses, bills they receive and payments made," Felder says.
Discuss your income and spending needs with a divorce attorney. Together, you can create a budget that considers your solo income, basic living expenses (such as housing, transportation and food) and any alimony (which is taxable to the recipient as income and tax-deductible for the payer) or child support you may pay or receive.
Also, meet with your tax preparer to discuss any changes you should make for your withholding at work.
Your budget will become an important tool when you negotiate the finances of your divorce.
Felder recommends that nonworking spouses avoid making any money demands until consulting with an attorney. If you understate your needs, it may be hard to budge the wage earner from your initial estimate, and this might extend litigation.
At the same time, the primary breadwinner needs to pay attention to where the money is going, too. "Don't be misled by guilt, and don't start throwing money at a spouse," Felder says. "This becomes basically an enterprise in which you bargain against yourself."
5. Change Your Passwords
Change all access codes and change them fast. Even if your separation has been amicable, your soon-to-be-ex could head online and turn both your money and your personal life upside-down.
When you change passwords, avoid using anything related to the relationship, such as family names or birthdays, telephone numbers or anniversary dates, or even favorite vacation spots. Make it something separate from your life with your spouse.
Make sure to change passwords for:
- Online banking
- Online investment accounts
- Social media sites such as Facebook
- Professional sites such as LinkedIn or sites for associations to which you belong
- E-mail accounts
If you continue to share a computer with your spouse, be aware that computer programs can track your keystrokes and record all your online moves.
Think I sound a little paranoid? Maybe, but you never know how a hurt or angry spouse may act in the months to come. Better to be safe than to find yourself flat broke.