Common financial mistakes to avoid in divorce

Divorce can drastically affect an individual’s financial circumstances if they fail to take precautionary measures.

Divorce is a deeply personal issue, but using the divorce as a means towards getting revenge can complicate the divorce and be counterproductive. As hard as it may be, experts recommend that couples going through a divorce keep their personal issues with one another out of the negotiations.

Joint credit accounts can pose a major problem after a divorce. According to certified public accountant Jerry Cohen, couples going through a divorce should not maintain joint credit. Cohen recommends closing any shared credit cards in order to prevent a spouse for becoming responsible if their ex fails to make a payment or accrues a large amount of debt.

If possible, all shared credits cards should be paid in full and closed prior to finalizing the divorce. If full payment is not an option, the balances should be transferred to one spouse and the other spouse’s name should be taken off the account.

Couples going through a divorce should not overestimate the persuasive power of a divorce decree. While a divorce decree states that one person must pay off the balance of a previously shared credit card, a credit card company can still hold the other person liable for that balance if the other spouse does not pay. This is because credit card companies are not a part of divorce decrees and will hold all borrowers responsible regardless of marital status. It is generally a good idea to check on joint accounts by running a credit report, which will tend to detect any anomalies and give you a chance to take action before you are exposed to any liability.

Cohen also recommends working with a financial planner to determine what your budget should be after the end of your marriage. Knowing the amount of money that you need in order to live comfortably will help you negotiate properly to ensure future financial security.

Source: Fox Business, “6 Financial Mistakes to Avoid in Divorce,” Teresa Bitler, 3/21/2011