Four Post-Divorce Financial Tips

Divorce is no picnic. It can be a legal nightmare with more than its fair share of emotional pain. Here are some tips that can lessen potential monetary damage.

Money matters are a cause of stress for even the happiest of marriages. Unfortunately, for many couples, they can ultimately lead to divorce. Unless you take action once your divorce is finalized, those financial problems could intensify. Take a look at the following steps to avoid common post-divorce pitfalls:

1. Revise your money management. The loss of income that results from a divorce can be ruinous if you're not prepared. To ensure that you can take the financial hit, prepare a budget based on your new income level. You'll also need to establish an emergency fund for cash. One option is to take out a home equity line of credit (HELOC), which is a second mortgage that works like a credit card. You can use the HELOC as your rainy day fund, and tap it only when you need it.

2. During the time you're filing for divorce, protect your credit report. This tip is for the pre-divorce period. To avoid having late payments on your credit report, keep an eye on all open accounts. Even if some are the responsibility of your soon-to-be-ex, see to it that payments are made on time. The short-term loss will be worth it in the long run, because your credit score will be preserved.

3. Divorce yourselves from each other's accounts. Even after a divorce has been finalized, you're responsible for shared debts if your name remains on your ex-spouse's credit records. Take immediate action to close these accounts and transfer balances into separate individual accounts.
Because it carries added weight on your credit score, adjust your mortgage as soon as possible. Lenders may be willing to remove a name from a mortgage, but don't be surprised if they insist that you refinance the loan in the name of the person who'll keep the house.

4. Update insurance and retirement savings. You'll need to reevaluate all your insurance and retirement plans. You may want to change the beneficiary on all your policies.

For the recently divorced, taking care of these potential problems is another step toward putting your divorce behind you. Spend time adjusting your financial accounts as necessary, and be sure that your money management reflects your new lifestyle. If you don't, the grueling ordeal that is divorce could get even uglier