Category Archives: Recently Divorced?

Your Credit and Divorce

Sadly many times personal credit is the collateral damage resulting from a divorce.  It’s not uncommon for one spouse to leave financial matters to their wife or husband.  In these cases, when the divorce hits, there is often disbelief as to the state of their personal credit.  Credit before and after the divorce is a very serious matter.  As such, I discussed the topic with Elizabeth Karwowski.  Elizabeth is credit coach and CEO of Get Credit Healthy, a consumer advocate organization helping individuals get back on the right path to credit health.

TBK:  While married, what are some things individuals should do in order to protect their own credit?

KARWOWSKI:  First and foremost review an annual credit report review is a must.  A credit report is a record compiled by a consumer reporting agency (CRA).  There three CRAs (Experian, TransUnion, Equifax) and they do not always have the same information.  Under federal law, you’re entitled to request a free credit report from each of the CRAs once every 12 months.  You can obtain a report at www.annualcreditreport.com.  Secondly, always keep tabs on joint accounts—don’t leave it to chance.  Ask lenders to send copies of all joint account statements, even if your spouse is responsible for making the payments.

TBK:  If someone anticipates a divorce, what actions should they take in order to safeguard their credit moving forward?

KARWOWSKI:  If you are not aware of your current credit situation, find out.  First understand all joint debt by getting a credit report.  If your name is on the note, creditors and lenders don’t care, and you are responsible for the debt, along with your spouse.  If possible, move quickly to close out all joint credit card accounts.  Take control and make the payments yourself to ensure it gets done.  In this way, it will be one less contentious matter during the divorce.

TBK:  What are typical credit-related issues people need to deal with once a divorce is finalized?

KARWOWSKI:  A divorce decree does not change the contracts in place with your lenders.  A settlement agreement may be good for the courts but not your credit, should your former spouse not pay joint debts stipulated in the agreement.  Divorce is traumatic enough even when financial issues don’t come into play.  However, very often the party who considers themselves “the victim of the divorce” will pile up joint credit card debt attempting to “hurt” their former spouse.  In reality, this practice hurts both parties.  High balances and unpaid or late payments on joint accounts are registered under each individual’s credit history.

TBK:  After the divorce, what steps should individuals take in order to repair their credit and/or establish their own credit identity?

KARWOWSKI:  There are several things to do:  1) Pay your bills on time; 2) Keep credit cards balances low (under 1/3 of the credit limit); 3) Pay off debt rather than opening and moving balances between credit cards; 4) If you have no credit in your name, starting with a secured credit card.  And of course, continue to monitor your credit report on an annual basis.  As for things not to do:  1) Do not max your credit cards; 2) Make all credit card payments on time; 3) Do not pull your credit report multiple times within a short period.  If you are diligent in your efforts, you can improve or maintain your credit score.  Higher scores, those above 680 on a scale of 300 to 850, generally are good for potential borrowers.

A Mom’s Divorce Story

The white picket fence is long gone.  The till death do us part was not to be.  The forever was over.  This is not the way it was supposed to work out.  Janet looks out the window of her office, thinking back on her divorce.   It’s been three years, but this successful business owner and mother of two can still remember the divorce process as if it were yesterday.

The divorce was not a bad thing initially, according to Janet.  “It felt great for the first year, even better for the second, but then reality set in and it seems to be increasingly overwhelming as my duties as the main provider keep increasing and becoming more demanding.”   Janet, now 39, divorced from her ex-husband Wayne, six years her elder, in 2013.  Dating for a year, their daughter was born shortly after the marriage, with a son two years later.  But between the births something went wrong.

Janet’s big kaboom moment—the realization that the marriage was over—occurred when her daughter was 4 years old.   “I knew it was over the day my ex-husband pushed our daughter off the couch after his all night outing,” reflects Janet.  This was not Wayne’s first bender; he was an alcoholic.

Like most alcoholics, Wayne was inconsistent in his behaviors and hid things very well, according to Janet.  The drinking lead to a lot of fighting in the household, often times in front of the children.  Wayne normally drank when he could not face his household financial responsibilities.  As is the case, money issues contributed significantly to the breakdown of many marriages.

Still, it took Janet another two years from the first thought of divorce until the marriage was over.  This is not uncommon; divorce does not happen overnight.  Janet and Wayne tried to save the marriage, but multiple counseling sessions did not work.

Today, Janet has no relationship with Wayne.  “My ex refuses to look at me or speak with me.  Our only correspondence is through brief texts or emails, most of which he ignores,” laments Janet.   To make things worse, Wayne is a non-participatory farther.  “He has no idea what the kids are doing in school, teacher names, or anything of the sort,” says Janet.  “He even refuses to take the kids to social events, such as birthday parties.”

As for the kids, they are still adapting to multiple households and separate parents.  Transitioning between homes still poses a challenge due to the young children’s ages and their inability to fully express themselves.  Their daughter is currently in counseling even though Wayne refuses to sign the consent for her to go.  Even so, Janet plows forward, paying for the counseling sessions out of her
pocket.

“If anyone is considering divorce, think about it long and hard.  Talk to someone who has been through it.  Seek the help of a psychologist both individually and for marriage counseling,” stresses Janet.  Still, in the end, Janet believes that if inconsistent household behaviors negatively impact individuals and children, divorce is an alternative—and many times—the only alternative.  Sadly reminiscing, Janet says that “divorce can be ugly and break your spirit and that of your children.”

Given Janet’s circumstances, divorce was the only viable end.  But given a divorce do over, what would Janet do differently?  “I regret not researching and vetting attorneys properly,” shares Janet.  Two years after the final judgment, Janet is still dealing with legal matters stemming from her divorce.  She believes that better prepared and educated going into the divorce, she would have saved time, money and frustration.

 

Divorce and Beneficiaries

Tomas and Angie were married for 12 years. Their marriage came to an end when Angie filed for divorce in 2011. Six months after the filing, the divorce was finalized. Eight months after that, Angie died from a heart attack and the proceeds from her $100,000 term life insurance policy were distributed to Tomas. Likely this was not Angie’s intention.

While your beneficiary choices seemed obvious and rock-solid when you initially made them—likely while you were married and your ex-spouse or a joint trust were the default beneficiaries—things obviously change after a divorce. Imagine if you pass and the proceeds from your IRA or a life insurance policy go to your ex-spouse and not your children or some other individual you intended?  Angie never did.

Naming a beneficiary also helps to keep your assets out of probate when you pass away. Beneficiary designations commonly take priority over bequests made in a will or living trust. For example, if you long ago named a son or daughter who is now estranged from you as the beneficiary of your life insurance policy, he or she is in line to receive the death benefit, regardless of what your will or trust
states.

Speaking of a will and trust, after a divorce, these documents take on an even bigger sense of urgency. And the fact is that most married and divorced individuals put this off due to the perceived cost and difficulty. Nothing could be further from the truth or cost your estate, loved ones and children more money and grief.

Bottom line, anyone who is single and has assets titled in their sole name should consider a trust. And once divorced, all assets will likely be titled in your sole name.

As a newly divorced individual, you can easily see why dealing with these issues is critical, especially where minor children are involved. The cost, time and effort required are well worth the money saved and the peace of mind delivered to your family and heirs after your passing.  Finally, if there was a will and/or trust in place during the marriage, make sure that your divorce decree contains specific language rescinding these documents.

Don’t assume. Don’t guess. Don’t leave it to chance. Make sure your assets are set to transfer to the people or institutions you intend. Although it’s a great idea to review beneficiary designations annually, it becomes paramount to do so right after a divorce is finalized.

Long-Term Care Insurance and Divorce

The paperwork is filed.  You’re divorced.  Now starts the process of changing your life, which begins with ending the details that once defined your marriage. The usual suspects are tackled first:  changing bank accounts, new credit cards and updating insurance documents.

However, one detail remains completely untouched, not thought of—maybe on purpose or simply overlooked.   What happens if you need care while recovering from an accident or an illness?

While married, we assume that our partner would be there for us.   From helping us in the event that something as simple as a broken arm or as complicated as Alzheimer’s affected us.  A divorce removes this built-in aid from your lives.  Now, you need to seriously question as to who can replace this care.

Long-term care is never even given a thought by the vast majority of divorced individuals.  A divorce is traumatic enough, why would you want to think of something worse?  However, the facts don’t lie.  According to a Genworth 2013 study, it’s estimated that approximately 70% of people over the age of 65 will require some form of long-term care.  And with baby boomers divorcing at a quicker rate and living longer, long-term care cannot be ignored.

It is difficult to think of asking your children to care for you.  This is especially true in this society where we all have to work and in many cases where children have moved far away. Not to mention the unfairness of burdening anyone with the outrageous cost of care.

The same Genworth study estimates that the average cost of care in a nursing home can be as much as $90,000 per year.  The average cost of care in assisted living facilities is $40,000 annually.  And if you have the privilege of being cared for in your home, the hourly rate is $20 for unskilled care.

“The greatest advantage of a long-term care policy is that it continues to give the insured a degree of autonomy and allows them to maintain control of their care,” says Debbie Lazaga of Worldwide Assurance.  “It also lifts the fear of becoming a burden to children or family or friends and allows them to continue to live independent lives, completely able to make choices and pay for that care.”

Like a will and a trust, long-term care insurance is almost always a must post-divorce.  But you’re thinking to yourself “expensive”, right?  These policies are not nearly as expensive as you might think.   Of course, as with any health insurance policy, the younger and healthier at the time of purchase, the more affordable it is.  The key to long-term care insurance is flexibility and the help of a licensed, certified long-term care agent in creating a policy that works best for an individual’s needs.

Social Security Benefits after Divorce

One of the things that few people may think about during the heat of the divorce process is retirement, and particularly Social Security benefits.  But these benefits can become a vital source of income in your future.  So it’s important to know what your rights are and where you stand.

“We do many social security analyses in my offices regarding ex-spouse benefits, collecting one’s own and suspending benefit collection until ex-spouse reaches a certain retirement age,” says Jennifer Failla, a financial planner specialized in divorce matters.  “Social security is a grossly overlooked and underestimated retirement asset; it is guaranteed, inflation-protected and a major source of permanent income for a client.”

If you divorced and your marriage lasted longer than 10 years, you are entitled to benefits.  Your benefit will be based on your ex-spouse’s earnings record and if you meet all four of the following criteria:

  1. You are unmarried.
  2. You are 62 or older.
  3. Your ex-spouse is eligible to receive Social Security retirement benefits.
  4. Your benefits, based on your own work record, are not higher than the benefit you would receive based on your ex-spouse’s earnings.

In most typical cases, a divorced spouse has a right to receive half of the ex-spouse’s full retirement benefit.  However, this does not include any delayed retirement benefits that your ex-spouse may get.

Your benefits are yours even if your ex-spouse remarries, because benefits for the second or current spouse are calculated separately.  If your ex-spouse is receiving benefits on your work record, that will not impact your own benefits, nor the benefits due to your current spouse.

As always, the devil is in the details, and there are few relatively obscure “if’s” that are good to know:

  • If you remarry, you are not eligible for benefits from your former spouse unless the second marriage ends also, whether that is by death, divorce or annulment.
  • If your ex-spouse is already eligible for benefits and the divorce was more than two years ago, for example, you can apply—even if your ex-spouse has not started receiving benefits.  People married less than two years must wait the ex-spouse starts receiving his or her own benefits.
  • Until your ex-spouse is still working and earning a salary, those benefits that you would receive are subject to the same limitations.

“Deciding when to start taking your social security benefits is an important part of the planning after divorce.  Although you might be eligible to take benefits as early as age 62, these benefits are reduced and it may make more sense to wait till  the “normal” retirement age of 67 before requesting reduced benefits,” says Philip Shechter, a veteran CPA and financial planner with Cherry Bakaert & Holland.

The Social Security Administration’s website has a calculator that tells you what your benefits might be in relation to your ex-spouse’s or (soon to be ex-spouse’s) work record.  You can visit http://www.ssa.gov/OACT/COLA/RTeffect.html to access the calculator.

Vehicle Title Transfers and Divorce

A very common situation in most divorce proceedings is the need to transfer vehicles as part of the final settlement of assets.

Recently, a client’s long-term marriage, where five automobiles and a boat were jointly owned, came to an end.  Not even a thought during the divorce proceeding, the topic of sales tax and transfer fees on the vehicles became a major concern to our client, as she had to transfer title on three of the automobiles and the boat.

A transfer of ownership on a Florida Certificate of Title occurs by operation of law as provided by section 319.28 of the Florida Statutes. Examples of which are: inheritance, devise or bequest, order in bankruptcy, insolvency, attachment, execution, divorce decree, or other judicial sale or whenever a motor vehicle is sold to satisfy storage or repair charges or repossession, trust receipt, or other like agreements.

In the State of Florida, the following situations are exempt from sales tax:

  • Even trade of another motor vehicle, mobile home or vessel
  • Trade down
  • Divorce
  • Inheritance
  • Gift

In the case of divorce, a copy of the divorce decree must be submitted with the application for certificate of title.  Not only does this waive any sales tax but this also saves the transferee the initial $225 registration fee.

The Emotional Aftermath of Divorce

The emotional response to divorce has been repeatedly described by people everywhere as equal only to mourning.   That is because you are mourning:  you are mourning the death of the marriage and there is the vacancy of your once-constant partner to remind you of it day after day.

A divorce can be consuming and so many daily routine life matters can change that it can feel like a spiral effect is dragging you down.   Your emotional state and recovery is vital during what many call “divorce grief”, because it can lead to physical symptoms that interfere with your quality of life, like insomnia.   Nearly 60 percent of people who recently went through a divorce suffer migraines, eczema or severe neck and back pain resulting from increased muscular tension.

There are certain general rules to the emotional reactions of people who are going through, or were just divorced.  Everyone is different, but experts have found that the emotions commonly shared by people going through a divorce come in stages:  while there may be a little relief at first – like opening a pressure valve – it is followed almost immediately by anger and resentment, then sadness and grief, then doubt or denial or guilt, then anxiety and stress and, finally acceptance.  There are exceptions to the rule, buy very few people are giddy about getting divorced.

Recent studies have also shown trends in how men and women suffer the consequence of divorce differently.  Mars is apparently loud and disturbed. Venus is more quiet and pensive.

Women tend to feel less stress and anxiety after a divorce.  That’s probably because they are the ones who more often than not see the marital discord and initiate the legal action.  It’s only natural that they would feel a sense of relief when the marriage ends. They are also more likely to seek out support systems and ask for help or go online for information (statistics show that you are more likely a woman than a man).  And while some mothers may be nervous at the thought of returning to the workforce – and certainly some resent it — their new independence and changing roles can boost their confidence and self-esteem.

Men can initially take divorce harder than women.  They stress far more about their financial matters, especially when they have to pay child support, and can become irritated with the sudden lack of parental control or just presence.  In many cases, they lose social connections – relatives of the former wife and mutual friends.

“Despite stereotypes, men are more likely to start questioning themselves—their looks, their signature traits, their ability to provide for their family, even their masculinity—after a divorce.  Especially since many of them never saw it coming,” says Dr. Jerome Poliacoff, PhD.

Maybe that difference is the reason why men are quicker to remarry.

In children, boys and girls tend to react differently to their parents’ divorce, too.  Boys have more academic problems at school than girls and they are more likely to express their anger verbally and physically, getting into fights over nothing with peers and at home.

“Girls internalize their feelings and may become moody or depressed.  If she was chatty before, she may become quiet.  They may withdraw from their friends or lose interest,” according to Dr. Howard Chusid, a counselor and Supreme Court Certified Mediator.

They may also manifest their anxiety physically with headaches or stomach aches, some experts say.  That could be because they are apt to have problems with their eating and sleeping patterns.  But, contrary to popular culture, there is no proof that daughters of divorce are more likely to develop eating disorders than girls who live with both parents.

While there has been much hand-wringing over the effects of divorce on children, the newest research indicates that the doom and gloom scenarios of the past are a bit of a stretch.  Experts now agree, for example, that the so called “negative side effects” among children of divorce – the depression, acting out, alcohol or drug use, trouble at school or with police – may have generated during the bad marriage.

Today, behavioral experts believe that marital conflict, not the divorce, is what drives the post-divorce behavior of children – as well as the once-married couple.  While a change in their financial status may cause a bit of stress when they can’t have the newest iPhone or top-of-the-line sneakers, kids can adapt well if they have solid relationships with their parents and get regular reinforcement of that from both of them.

“It’s plain and simple, the better the parents are able to communicate with their children and with each other, the better the kids will adjust,”  comments Dr. Howard Chusid.  “In fact, if parents can focus on the needs of the children, that can also help them in their own transition.”

Divorce can initially lead to a feeling of mourning for the death of the marriage and fracture of the family, according to both Dr. Poliacoff and Dr. Chusid.   And let’s not paint a too-rosy a  picture here – at least a quarter of adults and children who go through a divorce never fully get over the loss.

But, with communication and if the right steps are taken to mitigate and lessen the impact and burdens associated with divorce, those painful feelings make way for acceptance that the marriage was broken and created more conflict than peace, for a growing sense of regaining control of your life, for the excitement of new plans for your future and of learning new things about yourself.

What Is a Quit Claim Deed?

In many divorces where real estate is involved in the final settlement, the Marital Settlement Agreement (MSA) often calls for the issuance of a Quit Claim Deed (QCD) by one party to the other.  But what is a QCD and what else should be considered?

A QCD is a document by which a person transfers an interest in a house, mobile home (that has been permanently placed) or any other form of real estate to another person.  By giving such a deed, the person is simply transferring the interest in the property and is making no claim as to the interest another person may have in the property.

It’s important to note that a QCD does not guarantee that a property is properly titled.  Furthermore, if there is a loan on the property, the QCD does not release the issuer from the liability associated with the bank note.  For the person receiving the QCD, it does not mean that the property was “given” to free and clear.

For example, if as a condition for executing the QCD the ex-spouse demands to be removed from the loan note (as should be the case), the other party has to quality for a new loan on the property or pay the ex-spouse for their interest in the property’s equity.  This is a particular issue after a divorce, as in many cases the individual receiving the property cannot qualify for a loan based on a single income and credit rating.

Moral of the story: after or during the divorce process, all property titles and loans must be examined carefully.  Simple reports such as an Owner’s and Encumbrance Report or Attorney’s Opinion of Title are not expensive and clarify any issues with regards to real estate debt, title, easements, covenants, restrictions.  Having a real estate attorney or title company looking out for your interests is paramount.

The Post-divorce Top 10

Having been through a divorce—especially a long drawn-out one—it’s hard to believe that there are still so many things pending or to get done.  And, what we see a lot at Matters of Divorce is a tendency for one or both parties to the divorce to simply “check-out” and not get to work.

Of course, this is a formula for disaster.  But with what seems like a mountain of task items, where to begin?  What are the things that can’t wait and should be addressed right away?  Besides quickly tackling the Martial Status Agreement (MSA) “to do list”, you should at a minimum address the following items immediately:

  1. Cancel all Joint Accounts.  Terminate any accounts held jointly with your former spouse, and open new accounts in your name.
  2. Will and Living Trust.  First and foremost, make sure any existing will/trust with your former spouse is rescinded. Secondly, establish a new will/trust, this is especially critical is you have children.
  3. Beneficiary Designations.  Make sure to update your designations on any account or policy that allows such designations, such as: life insurance policies, IRAs and 401(k) plans.
  4. Medical Insurance.  If as a result of the divorce you are no longer covered by your former medical insurance policy, either file for COBRA or secure private insurance.  If you elect for COBRA, make sure to secure alternative insurance (private or through an employer) as soon as possible.
  5. Life Insurance.  If you have children and your former spouse was the one covered by life insurance, seriously consider a policy of your own.
  6. Motor Vehicle Titles and Insurance Policies.  Change all titles to reflect the proper ownership and update any insurance policies to reflect any changes in ownership, drivers and change of address.
  7. Rework Joint Debt. Refinance and remove your name from any debt previously held jointly, such as leases and mortgages and apply for credit on your own.
  8. Online and Physical Access.  If you shared online credentials with your former spouse, quickly change all passwords and/or terminate the accounts.  Change or collect all keys/access codes to vehicles, vessels, real estate and other property.
  9. Change of Address.  If you vacated the marital home, make sure to update all service providers, your licenses and especially creditors of the new address.
  10. Change of Name.  If your maiden name was restored as a result of the divorce, you must make the corresponding change with creditors, the department of motor vehicles, on your passport, with the Social Security administration and the department of elections, among others.

This is by no means an all inclusive list, but it’s a good starting point.  Every case is different, so always consult with professionals with experience in dealing with such life transitions as divorce.

The Need for a Trust and Will Post-divorce

As a married couple, you and your former spouse may have had a revocable living trust and/or will in place.  Regardless, after a divorce, these documents take on an even bigger sense of urgency.  And the fact is that most married and divorced individuals put this off due to the perceived cost and difficulty.

Nothing could be further from the truth or cost your estate, loved ones and children more money and grief. A will allows you to:

  1. Ensure that your possessions will be distributed as you wish
  2. Appoint and outline powers of an executor and/or trustee
  3. Appoint a guardian for minor children
  4. Specify funeral wishes
  5. Upon your death, expedite the legal process while reducing legal expenses

Besides the benefits outlined above with regards to a will, a trust allows you to:

  1. Plan for mental disability prior to death
  2. Estate planning for minor beneficiaries
  3. Keep your estate plan private (a will upon being filed with the court becomes a public record)
  4. Consolidate real estate outside of your home state under one estate
  5. For second or later marriages, insures that each spouse’s estate will go where he or she intends

Bottom line, anyone who is single and has assets titled in their sole name should consider a trust.  The two main reasons are to keep you and your assets out of a court-supervised guardianship and to allow your beneficiaries to avoid the costs and hassles of probate.  And now that you are divorced, all your assets will likely be titled in your sole name.

So why do I need a will and a trust?   If you have a properly constructed a revocable trust, you may not need a will.  At the time of your death, your property will be managed and distributed according to the terms of the trust you established.

But what about that piece of property that you recently acquired, forgot about and neglected to include in the trust?  Without a will, any assets that are intentionally or inadvertently left out of a trust will pass through the intestacy statues rather than according to the terms of your trust.

As a newly divorced individual, you can easily see why a proper trust and will are so critical, especially where minor children are involved.  The cost required is well worth the money saved and the peace of mind delivered to your family and heirs after your death.

Important note:  If there was a trust and/or will in place during the marriage, make sure that the Marital Settlement Agreement or Final Judgment contains specific language rescinding those documents.