Leaving your spouse is often a traumatic experience, especially when children are involved. Beyond the emotional stress, there are many potential financial dangers that often occur in breakups. Planning for these landmines can set you on strong financial footing later when you have to go it alone.
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1. Draining the Bank Accounts
Separations are frequently acrimonious, with one or both spouses acting in anger. Reactions can be punitive and financially risky and don't always make sense. One of the biggest dangers of leaving a spouse is the chance that the other spouse will take all the money out of joint accounts or cash in joint investments. That can leave you financially vulnerable, especially if you have to find a new place to live and are incurring moving expenses.
There are several ways to ensure that you are not left penniless while waiting for a protracted divorce fight. If you have separate accounts in your name only, move half of joint cash funds over into those accounts. Keep printouts of all transactions so that the cash can be included in the final settlement down the road. You may have to leave your spouse without the time to plan. In this situation, take out half the cash in the account as soon as possible. Don't expect it to be there the day after you leave. (Use your financial knowledge to help people preserve their financial integrity after a failed marriage. See Become A Certified Financial Divorce Analyst.)
2. Incurring New Debt
Prior to the final divorce decree, you are still legally married to your spouse. States differ on how legal separations are handled, but at least until a court decision is made, you and your spouse are jointly responsible for all debts. This includes any new debt your spouse may take out when you leave. For example, if your spouse applies for a new credit card and runs up the balance, you are on the hook for half of that, even if you had already moved out and did not agree to it. The best way to handle this possibility is to speak to a lawyer when you leave to find the quickest solution in your state.
3. Selling the House
Separation and divorce often means having to sell the family home. Without the other spouse's income, many people cannot afford to keep up the mortgage and maintenance. A forced sale of the house may impact both of you financially. If the real estate market is soft or the overall economy shaky, you may lose a lot of the equity in your home when you have to sell at a low price. Analyze your options if you don't think you will get top dollar for your house. If you believe that the down market is temporary, it may make more sense for your spouse to remain there in the short term until values go back up. Alternatively, you could rent out the house for a period of time.
4. Qualifying for Loans and Mortgages
Setting up a new life without your spouse means that you no longer have a second income. Applying for new loans and mortgages may be more difficult as you will have to qualify on your own. Your income and your credit history will be important determinants of whether you can obtain financing. Until you are legally separated or divorced, however, your applications will still be burdened with half of the marital debt. Talk to your financial planner to find a solution that works for you. If the divorce proceeding is coming up soon, your bank may ask that you hold off until then so that they can get a better idea of your true financial picture.
5. Lack of Financial Knowledge
Leaving your spouse may mean leaving the budgetary and financial brain trust behind. If your spouse was the one who always paid the bills, negotiated the debt and took care of retirement planning, you will be at a significant financial disadvantage until you can learn these skills. Budgeting is a skill that you will need right away as you manage on a single income. Look online for free budgeting courses or sign up for a course at your local college.
The Bottom Line
When you leave your spouse, your entire financial security is upended. Plan ahead if you can and, if not, consult with a divorce lawyer quickly to protect your financial assets and credit history. (Find out how to split your finances without coming up short. Check out Get Through Divorce With Your Finances Intact.)