Divorce is a time filled with stress and uncertainty, and money is a big part of it. The toughest part is that the divorce learning curve is quite steep. After all, there is no divorce preparedness class you can attend to steer you around potential pitfalls and explain what to expect! Over the years, I have seen many clients stumble and get blindsided by mistakes that could have easily been avoided. While there is no complete “smooth divorce checklist”, I can offer you three things you can do before your divorce to have a measure of control over your financial security.
Step 1: Check your wallet
First, go through your wallet and pull out all of your credit cards. Now, set aside any credit cards that are joint, as well as those where you are an authorized signer on your spouse’s account. You will lose the ability to use these credit cards once the divorce is finalized. The sorting step may be trickier that it sounds, because most cards won’t have an obvious note to alert you that the account is a joint one. I get into more detail below.
Next, be sure that you have at least two credit cards in your name only. It is best to have general-use cards for this purpose. Visa, MasterCard and Discover are all good options – just be sure that they are not limited to any one store. If you do not have two general-use credit cards in your name, now is the time to get them.
Once you have a clear understanding of what credit cards you have in the event you need emergency access to money, keep them in good standing. This may sound obvious, but make sure you pay the bills and have available credit at all times. If you find yourself on the side of the road with a smoking engine and little kiddos in the back seat, you will be glad to know that you can pay for the tow – even if your first card of choice had been compromised three hours earlier.
Step 2: Get organized
This step sounds like a lot of administrative paperwork. Busy people might be tempted to overlook it, but doing so can create negative consequences that will take years to correct. Start with creating a list of every account and credit card that your household has. The list does not have to be complex (a simple Excel spreadsheet will do) but be sure to include the card number, expiration date and the names on the account.
Be clear on who the joint, individual or authorized users are on each account. Don’t trust your memory on this – I know that calling credit card companies and checking statements can be painful, but your list must be 100% factually accurate. No guessing!
To be absolutely certain that your list is complete, request a credit report. Review it carefully, as it will include indication of account ownership. My favorite credit reports come from Experian via http://www.AnnualCreditReport.com. The ones I ask my clients to get show the “owner” on the accounts. Look for “individual” (in only your name), “authorized user” (you are being allowed to use someone else’s card) and joint (you know what that is). Or you could call the card issuer to ask.
Now that you have a complete list of every account and every card, come up with a plan for what happens to those accounts after the divorce. Some accounts may need to be closed permanently, or closed to be re-opened later as two separate accounts under different names. Accounts with a carried balance may require additional planning.
Tip: If you can do this nicely with your spouse, the two of you can compare lists and credit reports and maybe even start agreeing on when to take the authorized users off some of those accounts.
Step 3: Check your health insurance
Many families share healthcare coverage through one spouse’s employer. After all, it is convenient to work within the same network of premium payments, co-pays and doctors. If that is your situation, now is the time to look for alternative coverage. Researching networks and comparing premium costs is not a fun way to spend your day, but I encourage you to do it anyway. Consider your options and apply for coverage as soon as you can. Your goal should be to have a seamless transition for health insurance – not a single day without coverage.
In closing, don’t leave this financial prep to chance and don’t trust your memory. I recall a situation where a female client had opened a credit card account in her name when she was 19. A decade later, the original issuing credit card company was acquired, and my client’s file had been mistakenly processed to include her spouse as a joint account owner. During the divorce, my client was confident that the account was in her name alone – just to have the credit card company surprise her with the news and refuse to fix the mistake. After weeks of negotiating with the credit card company to un-merge the files, my client had to close that account to make sure her soon-to-be-ex would not have access to it – even though she had her heart set on keeping it open as her oldest line of credit. Lesson learned: when it comes to credit cards and divorce, it is better to be 100% sure. [Read more…]