By Carla Hindman, Director of Financial Education, Visa Canada
Divorce is often referred to as the No. 2 most stressful life event, second only to death of a spouse. And no wonder: Besides its obvious emotional impact, getting divorced can also be a financial nightmare as you’re forced to deal with nagging details like separating your finances, acquiring your own health insurance and deciding who will claim the kids as tax deductions.
Here are some of the many financial issues to consider when you separate – and to keep in mind even if your marriage is on stable ground:
Get good advice. Even couples who part amicably should have capable representation. That means not only hiring a good lawyer but often, a financial planner as well. Especially after a long marriage, you’ll need objective advice about how to fairly divide property (especially if the value has escalated), calculate child support, ensure you have sufficient health, life and property insurance, understand Social Security and retirement plan implications and more.
Although good financial planners aren’t inexpensive, the money their advice might save you in preventing a prolonged divorce battle – not to mention ensuring your future financial security – can be well worth the investment.
Protect your credit standing. One of the first things divorcing couples should do is separate their finances. This means closing joint bank and credit card accounts and opening new accounts in your own name. Also, if you share a mortgage or other valuable property, make sure your interests are protected in the divorce settlement.
These measures can help prevent an economically struggling or vindictive spouse from amassing debt that could ruin your credit. Just be sure all closed accounts are fully paid off, even if it means transferring balances to your new account and paying them off yourself. That’s because late or stopped payments by either party on a joint account – open or closed – will damage both of your credit ratings.
A word of caution to women: Although not as common today, in the past many women didn’t put their names on joint accounts; so if a woman’s husband died suddenly or they got a divorce, she had no personal credit history and had a difficult time opening accounts. Make sure you have personal or joint bank and credit card accounts in good standing to prevent such mishaps.
Check your credit reports. It’s always wise to know what’s in your credit reports, but at this critical juncture it’s all the more important. Your reports from the major credit bureaus should, between them, list all open and closed accounts and loans in your name, which will be helpful for knowing which joint accounts to close. The reports don’t always list all the same accounts, so to be sure, order both of them.
You can order credit reports directly from the bureaus’ websites (www.equifax.ca andwww.transunion.ca). It’s probably a good idea to order new reports again once the divorce is final and all joint accounts have been closed, just to make sure nothing is amiss.
Divorce can be a painful experience to live through. Don’t make it any worse by not protecting your own financial interests.
Article used with permission from Practical Money Skills Canada
This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.