Divorce is a rough time for couples and their children. Even if your relationship ends amicably, there are many details to sort out. For example, you might have to determine a custody arrangement for your children; come to an agreement on how to split belongings — and most importantly, you have to find the best way to deal with joint accounts.
It’s not uncommon for married couples to have several joint accounts. This is especially true with a mortgage loan, and they might apply for a loan in both names to qualify for a higher amount. Likewise, if one spouse has shaky credit, he or she may use the other spouse as a cosigner to qualify for financing or acquire a better rate.
But if a couple decides to go their separate ways, they have the overwhelming task of separating their finances. This can be a trying and difficult time, especially if they have several joint credit accounts or bank accounts. The sooner a divorcing couple handles the situation, the easier it’ll be for everyone.
At the end of the day, it’s important to fine someone to help salvage your finances and credit. Here are practical steps to managing your finances while going through a divorce.
#1. Joint bank accounts
Some married couples maintain separate bank accounts and handle their own finances, whereas other couples have joint accounts and merge all their money. No method is better than the other; however, it is easier on divorcing couples when financial accounts are kept separate.
If you and your spouse have joint accounts, both of you will need to open your own bank account, and then decide how to divide funds in the joint account — this includes checking accounts and savings accounts.
Understand, however, that dividing funds can cause problems. You may feel that funds in the account should be split down the middle, yet your spouse may feel that he or she should receive more because they contributed more.
#2. Close joint credit card accounts
Like your bank accounts, you will need to separate all joint credit card accounts. Unfortunately, you can’t close the accounts and walk away from the balance. Since both of your names are on the accounts, you’re both equally liable for the debt.
The best way to handle joint credit cards is to pay off any balance and then cancel the card. If this isn’t doable, you and your spouse can apply for a balance transfer card in each of your names, and then transfer a certain amount from the joint credit card to your individual cards.
#3. Joint mortgage loans
Selling a home is one of the easiest ways to handle a joint mortgage loan. Since the mortgage loan eliminates the debt, the two of you can take your profits and go your separate ways.
However, if you (or your spouse) decide to continue living in the house, the only way to remove your spouse’s name from the mortgage loan is to refinance the loan. This isn’t an issue if you have the income and good credit, thus you’re able to qualify for the mortgage loan on your own.
If you quality, the new mortgage replaces the old one, at which time your spouse’s name is automatically taken off the mortgage. Afterwards, your spouse will need to sign a quitclaim deed. This document removes your spouse’s name from the mortgage deed, relinquishing his or her rights to the property.
#4. Joint car loans
Like a mortgage loan, refinancing is the only way to remove your spouse’s name from a joint vehicle loan. However, if you (or your spouse) cannot qualify for a refinancing, the two of you may mutually agree for one person to keep the car and make the payment, under the original financing terms. However, since both of you remain liable for the car loan, both credit scores will suffer if the other person defaults on the loan. Therefore, it might be in your best interests to sell the car.
Unfortunately, getting a divorce can wreck havoc on your personal finances. But if you and your spouse work together to dissolve joint accounts, and continue to pay debts that you’re responsible for, you can get through the process without crippling your finances.