I tell clients to pretend that they are living in two worlds during the divorce process: 1) the legal world; and 2) the real world. In the legal world, their divorce orders and judgment can state that one party takes certain debts and the other party takes other debts. Unfortunately, in the real world, creditors don’t really care much about those orders—if a name is tied to a debt, they will go after that person, no matter what the judgment says. Armed with that knowledge, there are several ways a person can minimize the potential financial devastation that is all-too-often accompanied with divorce.
- Run a credit report.
- Work with your spouse to cancel joint debit, credit, and revolving charge cards.
- Revoke your will, power of attorney, and/or trust.
- Amend your W-4.
- Don’t manipulate your earnings and income.
It doesn’t matter that you are more than 100% positive you’ve never jointly opened up a credit card with the other party. Run a credit report anyway. You never know if the other side has done so without your knowledge or permission. You may also have forgotten about that one card that the two of you opened up for that one expense. Make sure that you don’t go too far and order a copy of your spouse’s report though, as that is a violation of federal law.
It’s a very smart idea for you and your spouse to revoke the other’s “authorized user” status on joint accounts and to begin securing individual credit as soon as possible. Not only does this clarify separate debt versus debt incurred during marriage, but ensures that your spouse can no longer adversely affect your credit.
Don’t give your soon-to-be ex power to continue making life or death decisions about you. Draw up a new will, health care directive, and durable power of attorney. Make sure that you mark your old documents null and void, advise the appropriate people of your new circumstances, and keep the new documents in a safe location.
You will likely be faced with higher taxes as a single person, and it’s a good idea to get used to your new financial circumstances sooner rather than later. Increasing the number of withholdings will lower the chances of owing on your taxes.
This only increases the amount and overall cost of litigation. The other party is entitled to review your financial records, and disputes over income tend to be the most expensive battles. If caught, you will likely end up being responsible for the other party’s attorney fees in addition to your own. Protecting yourself is fine. Committing perjury and fraud are not.