Untangling finances when marriage ends INQUIRER.net
July 21, 2009
(This is part of Take Charge of Your Money, a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)
Q: My husband and I are in the process of filing for legal separation. Although we do not own any real estate property together, we do have joint bank accounts. I also have a supplementary credit card, with him as principal cardholder. Other than that, we don't have other assets or accounts that are linked to each other as far as I know. What must we do? – Maricar
A: When a marriage ends, it is necessary to untangle financial lives as well. With legal separation and also for an annulment, you are in effect declaring that you want to live separate lives; your finances must be separated as well.
Although it may be difficult, strive to keep an open communication line with your former spouse. Come to an agreement regarding what to do with your investments, accounts, and debit and credit cards, among others.
According to Use Credit Wisely, a publication of Citibank, “A legal separation does not change your agreements with creditors. You could be liable for marital debts even if a court-approved decree orders your former spouse to pay them.”
Thus is it is wise to still be in touch with your spouse to check if he has paid all your marital debts. If not, work out an arrangement or even pay off the loan yourself so your credit history will not be affected.
Establishing your credit history is now essential since you will be on your own. Protect your credit. Use Credit Wisely lists down the following steps you should take as you and your former spouse undergo legal proceedings:
1. List all credit accounts. These include loans and credit card accounts. Determine the current balances of these accounts. 2. Make your required payments. See to it that credit card loans and other loans are paid before their due date. “Late payments and other problems may become part of your credit history. Your future ability to obtain credit could be affected and cause problems later on,” advise the authors of Use Credit Wisely. 3. Contact your creditors. Let them know that you are undergoing changes in your personal lives, and need to separate accounts. 4. Untangle your marital credit. With your former spouse, close a joint account and request that your account as supplementary credit card holder be closed as well. 5. Establish independent credit. Apply for your own bank account and credit card. The bank will review your individual assets, income and credit history in determining the appropriate action regarding your credit card application. Don't be discouraged if your credit limit may be low at first. As you establish yourself as an independent and reliable credit customer, you may be given a higher credit limit later on.
Once you have your own credit card and bank account, maintain good credit by doing the following: 1. Pay your bill on time. Late fees will just add to the cost of your borrowing, and will affect your credit history. 2. Pay at least the minimum amount due. If you can pay in full or pay an amount higher than the minimum amount due, do so. If funds are tight, aim to at least meet the minimum amount due. Bear in mind, though, that interest will be charged on the unpaid balance rolled over. 3. Don't overextend yourself. Charge only purchases you can afford to pay. Be as careful with credit as with cash. Experts say no more than 20 percent of your monthly take-home pay (excluding rent and mortgage) should go into paying debts, including loan payments and credit card payments. 4. Spend as you earn. Don't spend (by charging today) what you have yet to earn in the future. 5. Notify creditors of your new address and phone number when you move. This will ensure the prompt delivery of bills and will help you meet your debt payments on time. If you don't receive the bill on time, call the credit card company to get your balance and due date as you are not excused from making the required payment. Better yet, sign up for electronic statements to be sent to your e-mail address so you will be sure to receive all your bills way before the due date.
Having your own financial accounts demands responsibility. Take care to protect your credit.
(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts.)
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