Divorce Can Complicate Unsecured Loans, Savings and Investments

Sunday, January 17th, 2010 By

Divorce and your finances


Divorce can seriously complicate finances like unsecured loans, savings and investments. If divorce is in your imminent future there are some things to begin thinking through. First of all, set some post-divorce financial goals. You want to stay focused on where you want your retirement savings to be, how much money needs to be in a college fund, and how you are going to reduce your debt. Second, make sure you review all your paperwork regarding shared accounts. This can include savings accounts, credit cards, loan documents, unpaid tax bills, and estate planning strategies. Finally, research your state’s QDRO, or Qualified Domestic Relations Order. This is a document that will prevent your spouse from making retirement account withdrawals while the divorce is in progress. Remember that if at all possible, it is highly advantageous to settle disagreements amicably and avoid paying thousands of dollars in lawyer’s fees.

The first order of business when facing a divorce

The first order of business should be protecting your financial situation. You’ll need a trusted lawyer who is well-versed in divorce and settling assets. It is crucial to hire a lawyer who knows the laws that affect divorce proceedings and the impact they have on your finances.

Dividing assets

Normally assets accumulated throughout the marriage are up for splitting. The exception to this rule however, is inheritances individually gifted. When assets are split, the court will consider each spouse’s earning ability, how much each contributed to the overall household assets and the length of the marriage. There are states that have exceptions though. In community property states like Arizona, California, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, all assets are divided equally between spouses.

Debt and the divorce

One of the biggest issues to address in a divorce is debt. Divorce does not eliminate debt. In fact if you are in a community property state, debt is split down the middle just like assets were. The caution in these states is that half the debt from one spouse, is shared by the other. Unsecured Loans, credit cards or retail credit can all plague the spouse who never created them. If you are in a non-community state then debt belongs solely to the spouse who incurred it.

The issue of debt is also relevant if married couples had joint accounts. These are important to address immediately because your spouse could continue to rack up debt and then leave you with it. All accounts that are shared should be frozen. Notify creditors of the situation and most will stop all charges to the account. Almost every major credit lender has a procedure to handle divorces.

Retirement assets settled

Money that is kept in a 401(k) account or pension plan can be divided up in a divorce. The amount included in the division is made up of funds accumulated from the time the marriage began to the time when the marriage ended. To claim a portion of your spouse’s 401(k) you need to have a court ordered QDRO and submit it to your spouse’s plan sponsor before the distribution period is finished. Some couples also opt to leave retirement funds untouched throughout a divorce. Particularly if the amounts for each spouse are close in value, this can be a viable option in handling the situation.

Estate planning

Finally, although unsecured loans, credit and savings are important, so is your future. Be sure to review your will and other documents to ensure that money is going to a new beneficiary. Those getting a divorce are cautioned to not wait to address the issue of estate planning. Review and amend an estate plan while carrying out the divorce proceedings. Though it is a difficult time for anyone when he or she is going through a divorce, securing their future is important. Taking pains to handle money wisely can protect assets and your future.

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