Financial Issues Related To Divorce

January 19, 2013

Financial issues related to divorce
Article provided by Collier, House and Brown, PLLC Visit us at http://www.joydaviscollier.com
Tennessee couples going through divorce are experiencing changes on many levels, not the least of which is financial. Managing finances during and beyond divorce is a challenging enterprise, and the pitfalls can be devastating for those who do not become informed and take appropriate action. Here are just a few financial concerns to watch out for.

Joint obligations

One major mistaken belief is that when one spouse has been ordered by the court to pay a debt, the other spouse is home-free. However, if a joint account existed before the divorce, the debt can remain a joint obligation unless the account holders act to modify the account status.

A credit card company doesn't care about a court order that makes one of the joint account holders responsible for payments. The company can legally enforce its original agreement with the cardholders that holds both spouses responsible for the account balance. It can go after either ex-spouse for unpaid amounts due.

The wise course of action is to close joint and co-signed accounts before completing the divorce.

Mortgages

In the same vein, when couples jointly own a home, one spouse may be awarded the home in the divorce, but the mortgage is another matter. The mortgage lender is not going to remove a borrower's name from the note; both ex-spouses remain liable for the full amount of the mortgage.

If the spouse who gets the house fails to keep up the mortgage payments, a resulting foreclosure will wreck both ex-spouses' credit.

If possible, divorcing couples should find a way to pay off an existing joint mortgage, and they could be better off selling the home and dividing the income.

Realistic planning

Divorcewill mean less income to depend on. If an ex-spouse does not realize that fact and continues to spend money as before the divorce, he or she could encounter serious financial difficulties. Shopping habits and budgets have to be adjusted, and discretionary spending may have to be reined in.

Where children are involved, parents have to resist the temptation to compete in spending money on the children. It may be necessary to cut back on some of the niceties in order to avoid running up debt, and parents will have to examine priorities.

The children's most important needs must first be covered, like housing, food and clothing. Financial advisors suggest that single parents try to keep fixed costs at or below half of pre-tax income.

To provide security for children, a parent who pays child support should be covered by life insurance with the children as beneficiaries. Disability insurance is a good idea as well. And the parent who has the best medical plan should cover the children's health insurance expenses.

Consulting with a knowledgeable family law attorney can help individuals going through a divorce to understand these and other financial issues. The attorney will be able to go over questions about the legal implications of financial decisions and can help the parties to reach a resolution that is realistic and practical.