7 big post-divorce money mistakes
Keep a level head after a breakup when it comes to spending
Breaking up is not only hard to do, it
can be brutal on your finances.
Legal fees and creating two households from one are just the initial costs of separation. And while some expenditures are
necessary, others can be emotionally charged and careless and can lead to serious debt.
Here are seven common ways divorced couples can get into big financial trouble after a split:
1. Ignorance. While a divorce decree may specify who is to pay what
account, it carries little weight with lenders.
"The most frequent mistake of all after
divorce is assuming that because the ex has been the one ordered to pay back
the debt in the divorce, they are off the hook for it," says Lisa Decker, an Atlanta-based
certified divorce financial analyst. "Most people do not understand that courts
do not have the authority to make creditors abide by a judge's orders in a
divorce." If possible, delete jointly held debts before leaving, then
close all co-signed
2. Delusion. If you relied on the other person's income during the
marriage, your cash flow may take a hit. As it constricts, so must your budget.
Unfortunately, many who are accustomed to abundance deny reality and continue
to shop as before. The bills, however, wind up on the cards.
Blindly carrying on is not necessarily
selfish, says Livonia, Mich., divorce financial adviser Carrie Cole, particularly when
children are involved. The motivation stems from hoping to preserve their kids'
standard of living. "The No.1 thing most parents want is for a child's
lifestyle to continue," says Cole, explaining that they pay for such luxuries
as "private schools, riding lessons and skating lessons when there is clearly
not enough money to go around." Resist; be conscious of your current
circumstances and spend accordingly.
3. Neglect. Own a home together? Credit problems will erupt if you
don't bother to determine the property's real worth before assuming the other
person's share or completing the proper paperwork.
Sheryl Petrashek, an Apple Valley, Minn.,
real estate agent, has seen many cases where one party was awarded the rights to
the home, but neglected to remove the other person's name from the note. Then,
"when the spouse who is supposed to pay the mortgage quits paying, it ruins the
credit of the other spouse, too," says Petrashek. She believes most divorcing
couples would be better off selling real property, then dividing the proceeds
equitably. And if you stay put? Update all ownership documents immediately.
4.Revenge. Wanting to ruin your ex by charging up the cards is a
frequent response to betrayal, says Todd Huettner, president of Huettner
Financial, a Denver consulting firm specializing in divorce finance. "It is
what I call 'the saboteur spouse,'" he says. Squelch this desire, though. While
big balances may result in the hoped-for fury, you too could be held
responsible for the balance.
Plus, it's not just the saboteur who
makes shortsighted financial choices during and after a breakup, but also the
one who fears revenge debt. "They rush out and close a bunch of accounts and
open new ones," says Huettner. "This is often the last thing you want to do. It
can really lower your credit score, which limits other options."
5. Beauty. If you've been dumped for a younger model and want to make
yourself feel better by looking better with the hope of attracting a new mate, you
may be considering splurging on a beautification procedure.
Be careful, though. Cole says she's
familiar with this reaction, and it usually translates into little more than
added liabilities. She cites a client who spent about $20,000 on plastic
surgery after discovering her husband's affair. "It was money that she clearly
could not afford to spend; however, it was more important to her than paying
off credit cards," says Cole. Worse, those nips and tucks had no positive
impact on her soon-to-be ex. Delay any major decisions -- financial and
cosmetic -- for at least six months to a year after a divorce is finalized.
6. Competition. What happens when one parent can afford more and better
things for the children post-separation? The less wealthy partner sometimes
attempts to keep up with or even outdo the other.
"Oftentimes, there is a pre-divorce
battle for the children's love and affection by purchasing gifts for kids or
taking them to concerts or cruises in order to gain their affection over the
other spouse," says Alan Ross Frisher, a certified divorce financial analyst
from Melbourne, Fla.. Question your motivation for purchasing certain
items for the kids. If it's to prove your love, stash the cards.
7. New love.
Getting sucked into a fresh romance when a marriage falls
apart can be seductive. It can also be pricey.
Noah B. Rosenfarb, a certified public
accountant in Short Hills, N.J., says one of the most common post-divorce
credit issues for his female clients are loans they make to new boyfriends. "In
some cases, it may be a thousand dollars to fix their broken car, but in others,
it is tens of thousands to help them with their business, or hundreds of
thousands to put towards an 'investment' that was really a scam," says
Rosenfarb. His advice: Avoid lending or giving money to anyone for at least a
year after divorce.
Almost everyone has regrets about a
broken relationship. Don't make needless, emotion-based liabilities one of
them. Divorce your mate, not common sense.
See related: Dividing credit card debt in divorce, Protect your credit score during divorce, Divorce and debt: Advice on dividing up, paying off debt, Credit card revenge spending, 7 ways to protect against being a victim of credit card revenge
Published: June 7, 2011