Protecting Your Finances and Credit During a Divorce

If you are getting a divorce or even considering it, one of the first things you want to look at are your finances and credit card situation. Many people wait until it's too late, thinking that their spouse is "different" or that their divorce is going to be "friendly," and then they are surprised when suddenly they find a huge credit card bill or an empty bank account.

The cold, hard fact is that divorce often does two things - causes sudden financial hardship and brings out the worst in individuals. This is a combination that makes for disastrous situations. Sometimes a person will start charging on a card because they justify the purchases as things they really need and that the other spouse can afford because they make more money, or just because they are angry or upset. Sometimes they empty a bank account because they are afraid they will be taken advantage of and want to strike first; whatever the reason, you should understand your rights and how credit and accounts work if you are facing divorce so that you can protect your own rights.

Individual credit card accounts were applied for in one name only, usually that of the primary breadwinner in the family. If you are getting a divorce, check to see (if you are the primary name on it) if there are user names on the account such as your spouse and children. If so, remove your spouse's name immediately so that he/she doesn't continue to use it to run up huge purchases.

With an individual credit card, you are the only person needed to make a change, and the only person responsible on the card - so even if a divorce decree says later that she should pay off her purchases, the credit card company can come after you for those charges because you are the only name legally on the account!

Joint credit card accounts are in the names of both spouses and usually applied for if both incomes are to be considered. With this type of account, both of your credits will be affected if the bills aren't paid. Pay attention, because if the court says your ex-spouse is responsible for paying off a particular card but doesn't, it could wreck your credit rating, too.

You can contact these creditors and ask to have these accounts converted to individual credit accounts in your spouses name so that it is solely their responsibility and you can no longer use it and are no longer responsible for it. You will have to have your spouse's cooperation for this in most cases, of course.

Contacting all of your creditors is also a good way to protect yourself. In general, credit card companies are more cooperative and flexible if they know what's going on. Call each of them and let them know that you are going through a divorce and that things may be rocky for a bit. Tell them that there may be a few months where finances may be fluctuating and that you would like to work with them. Ask that they make a note of this in your records so that, if you do fall behind a bit on payments or there is a dispute over unauthorized charges at a later date, there will be a record.

Also send notification in writing so that there is a paper trail of all of your requests in the event anything goes to Court. This is a safeguard that can protect you from unauthorized charges by your spouse if you have asked to have them removed from an account and the credit card company failed to do so. Depending upon the state you live in, there may be other precautions for you to take as well. Consult him or her before proceeding further.

Don't Forget Your Bank Accounts

Most married couples have joint bank accounts because when they got married they thought (of course) that it would last forever. Over the years, their funds became intermingled and no one knows whose money is whose or which money belongs to whom. Unless one spouse has been siphoning off funds for a period of time, this represents the bulk of the cash on hand, whether it is in a savings or checking account.

If divorce is being seriously discussed, the first thing you should do is immediately withdraw one-half of what is in the account and put it into an individual account in your own name, preferably in a separate bank altogether in order to avoid banking in the same location. Then allow your spouse to keep the remaining account as his or hers, and turn over all check books, deposit slips, etc.

Having an attorney freeze all bank accounts and setting up an escrow account monitored by the courts is also an option, however this requires approval of all transactions and can be very intrusive and essentially converts your joint account to a court-supervised account, and both you and your spouse will still have to open up separate accounts for yourselves anyway.

Protecting Investment Accounts

Protecting credit card accounts and bank accounts is certainly the most obvious step when going through a divorce, but there are other accounts you should be concerned about as well. In many cases, a spouse will completely forget about investment accounts until it is too late simply because these are accounts that aren't used regularly, and so they fall into the "out of sight, out of mind" category.

To prevent this happening to you, make a list of all of the marital investment accounts, including IRAs, stocks and shareholder accounts. Contact the broker or financial adviser in charge of these accounts and explain that there is or may be a divorce in progress and that nothing should be changed without the written approval of both you and your spouse. Send a letter reiterating this so that you have written proof as well, and make sure that it is noted that all online and/or telephone transactions are to be suspended as well.

If you follow these steps, you will be able to minimize the risk of taking the additional pain of a financial hit while going through the emotional turmoil of a divorce.

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