Getting Divorced: FAQs Part 1

Scarsdale CPA Paul Herman has all the answers to your personal finance questions! While nobody likes to think they will go through one in their lifetimes, the fact is that 40-50% of all marriages end up in divorce. The best way to arm yourself in case a divorce ever does happen to you is by getting to know the following frequently asked questions and answers:
▼ Is it possible to financially prepare for divorce?

A plan for the termination of the financial partnership of the marriage is crucial if you are thinking of divorce. All financial assets and liabilities that have been acquired during the years of marriage will need to be divided. If children play a role, the support that will be paid to the custodial parent in the future should be taken into account.

The time put into organizing this will be worth it in the long run. The following are a few steps to consider:

  • Prepare an inventory of your financial situation that will help you in two ways:
    1. It will aid in determining how debts accumulated during the marriage will be paid off. (It is best to try and get all the joint debt (credit card debt) paid off before the divorce. To come to an agreement as to the method for paying them off, it is smart to make a list of the debts. )
    2. It will give you an introductory look at the information needed to divide the property.
  • Prepare a list of all assets, whether joint or separate, that includes:
    • Your residence(s)
    • The value of any brokerage accounts
    • Your valuable antiques, jewelry, luxury items, collections, and furnishings
    • The current balance in all bank accounts
    • Your autos
    • The value of investments, including any IRAs
  • Locate copies of the last two or three years’ tax returns. These will be beneficial later.
  • Know the exact quantity of salary and miscellaneous income brought home by your spouse and you.
  • Obtain all papers regarding insurance, life, health, pension, and other retirement benefits.
  • Make a list of debts that are owed both separately or jointly, including mortgage, credit card debt, auto loans and other liabilities.
▼ How should credit card accounts be dealt with during a divorce?

As soon as you know you are going to be getting a divorce, immediately cancel all joint accounts.

Regardless of who accumulated the bill, creditors can legally try to collect payment from either party on the joint credit card or other credit account. You will be responsible for payment as long as your name appears on the joint accounts.

The agreement that is reached during the divorce may state who must pay the bills. From the creditor’s point of view, both your spouse and you are responsible as long as the joint account stays open.

Divorce FAQs from Scarsdale Tax Preparers

Get to know these FAQs to prepare yourself in the case of a divorce.

The creditor will attempt to receive payment from who they think are most likely to pay while reporting late payments to the credit bureaus in both names. Due to the irresponsibility of the co-signer, your credit history could be harmed.

You may be required to pay the remaining balance in full upon closure of the account. If this is the case, ask the creditor to distribute the outstanding balance to separate accounts.

 What can I do when my current or former spouse’s bad credit affects me?

It is possible to separate yourself from your spouse on your credit report, if the spouse’s credit is hurting yours. If you can prove that he/she opened the shared accounts prior to marriage and that he/she pays the bills, you might succeed in convincing the creditor that the damaging information is relevant to your spouse and not you.

It may take persistence to demonstrate that the credit history in question doesn’t reflect your own.

▼ After a divorce, what happens to my credit history?

If the name on your account changes, lenders may appraise the application and credit line to decide if your qualifications meet the credit standards. You may be asked to reapply.

To avoid inconvenience, maintain credit in your own name. Preserving your own, separate, credit history makes things easier in the future. In an emergency, if you need credit, it will be available.

Avoid using your spouse’s name – i.e. , Mrs. Peter Johnson – for purpose of credit.

Get an update on your credit report. Be sure that your name, as well as your spouse’s, is being reported correctly. If you would like to use your spouse’s credit history to your benefit, simply write a letter to the credit agency and request that both names be put on the account.

Find out if there is any incomplete or inaccurate data in your account. Send the credit bureau a letter asking them to correct this information. They need to confirm receipt within a normal time period and inform you when the mistake is fixed.

Improving your own credit history in your name should be simple if you have been sharing accounts with your spouse. Make a call to a major credit bureau and ask for copies of your account information. Get in touch with the issuers of the cards with whom you share accounts with your spouse and request to have your name on the account as well.

Scarsdale accountant Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Mt. Kisco NY, Larchmont NY, Scarsdale NY, Rye Brook NY, Pound Ridge NY, Stamford CT and beyond.

2 Responses to Getting Divorced: FAQs Part 1

  • Brian Huber says:

    An especially important step in divorce planning is consulting with a tax adviser before selling any assets in the marital estate to provide cash for the final divorce settlement. For example, a problem occurs if a 1099-B for securities sales is issued after the divorce with the tax ID of a spouse who did not end up with the proceeds. This is particularly confusing when the divorce decree calls for the receiving souse to pay the tax liability. The IRS matching program will still expect mention of the securities sale on the tax return of the spouse whose tax ID is on the 1099-B.

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