If you are contemplating a separation and divorce there are four things that every spouse should do before they separate:

Obtain copies of your credit report

You are entitled to a free credit report every 12 months from the three credit reporting companies, Equifax, Experian, and TransUnion.   Click here to request a report from all three companies. Consider requesting a report from only one of the companies.  Once you have the report, carefully review the report.  If anything looks worrisome go ahead and request a report from one of the two remaining companies to see if they report the same worrisome item.   Determine which accounts are held in your name and which you are a joint holder.  Sometimes a spouse opens an account listing you as a joint or authorized user without your knowledge, which is why it is important to review your credit report.  Be mindful of any accounts and debt for which you are the primary account holder as you are legally liable for those debts and failure to pay those debts timely will negatively impact your credit.  You still have one or two free credit report requests remaining and should request another free report a few months later to see if your credit has changed.

Establish Credit Independently

If you do not have your own credit, start small and build up ideally before you separate from your spouse as you may need to rely on credit during your separation. Apply for a credit card that has a small credit limit, such as one from a local department store or financial institution. Once you have the credit card, make sure you use the credit but always pay your bills in full and on time so you can build an excellent credit history. After several months of paying on time, you can apply for another card and continue paying those bills on time as well. Eventually, you will establish excellent credit in your own name. However, don’t spend more than you can pay, otherwise you will tarnish the good credit you are trying to build. 

Have your own bank account

Opening a bank account in your sole name is a good step toward establishing good credit. When you open a separate bank account, consider using a different bank from your spouse.  Mistakes can be made if you continue to use the same bank, for example, accounts can be linked or statements misdirected.

Make copies of important documents

Copy your three most recent tax returns and all the documents that support the assets and liabilities that you and your spouse have, including life insurance policies. If you have a claim related to non-marital or separate property, take all the documents that support that claim with you. If there are bills that are in your name, make a copy so you can monitor the account to be sure that it gets paid in the future. Finally, if there are any documents or photos that are irreplaceable bring them with you.

For additional information on maintaining good credit read Maintaining Good Credit During and After Divorce on the Hess Family Law Blog.  

If you are recently separated or divorced it is important to maintain good credit.   If you allow your credit score to fall you may have difficulty buying or renting a home, obtaining insurance, buying or leasing a car, or finding a job.   So, what can you do to maintain or improve your credit especially when you may feel overwhelmed financially?

Amy and Curtis Arnold, in their Huffington post article, How to Improve your Credit Score After Divorce, have the following suggestions:

Establish New Credit:  Closing joint accounts and establishing accounts in your own name is a good step toward maintaining good credit.  Initially, your credit score might go down because you have less credit available to you, but if you reestablish credit, that dip should be temporary. 

Review your Credit Reports:  You are entitled to a free credit report every 12 months from the three credit reporting companies, Equifax, Experian, and TransUnion.   Go to annual credit report,  to request all three.  Once you have the reports, carefully review them and determine which accounts are held in your name and which you are a joint holder.  Sometimes a spouse opens an account listing you as a joint or authorized user without your knowledge, which is why it is important to review your credit report.  

Pay Bills on Time:  If you are considering paying bills late, or worse, not paying at all, you should reconsider.  This action could be extremely detrimental to your credit.  One missed bill payment or a late mortgage payment could affect your ability to purchase a home and/or open accounts in your own name down the road.   If you think you might be late with a payment, contact the lender or creditor, explain your situation, and ask for an extension.   While there is no guarantee that they will agree, if they do, your credit will not be damaged, so long as you pay according to any new agreed upon terms. 

Work with a Family Law Attorney:  Mr. Arnold’s article recommends working with an attorney who focuses on family law.   Having an attorney who you trust and who can advocate for you is important at this time when emotionally you may not be able to make rational or reasonable decisions.  If you and your spouse are not able to agree on finances, a family law attorney, such as Geraldine Welikson Hess at Hess Family Law, can help you review your options and seek assistance from the Court when necessary. 

Educate Yourself:  If you were not the spouse in charge of finances, now is the time to educate yourself. Read articles, talk to a financial advisor, and gather information.  Knowledge equals empowerment. 

Be Wary of Retail Therapy:  Divorce can be emotionally difficult.  Oftentimes people turn to retail therapy to ease their pain.  However, this could lead to significant debt and/or depleting savings.  Before making a purchase, determine whether you really need the item.  Ask yourself why you are buying the item and think about how it will affect you financially down the road.  You may also benefit by talking with your attorney and/or a financial advisor about the pros and cons of spending vs. savings while you are going through the divorce process.  Taking a moment to consider options often leads to better financial decisions.

If you have a child applying to college or currently in college then you have probably assisted them in applying for financial aid.  There are two major financial aid forms: the Free Application for Federal Student Aid (FAFSA) and the CSS Profile.   The FAFSA requires financial information only from the custodial parent, which for purposes of the FAFSA application is defined as the parent that the child lives with more than 50% of the time. This applies to students whose parents are divorced or have been separated for at least six months prior to filing the FAFSA application.   However, if the custodial parent remarries, the stepparent’s financial information must be included for financial aid purposes.  Additionally, any child support that a parent receives is considered income for both the FAFSA and CSS Profile.

Divorced or separated parents should note that most but not all colleges that require the CSS Profile expect the noncustodial parent to complete a noncustodial Profile form. Both the custodial and noncustodial parents’ income is considered.  However, the total family contribution from both parents is usually slightly less than if the parents were still married, because colleges take into consideration the added cost of maintaining two households.  If both parents income is considered by the college then a stepparent’s income is not usually included; however if the college only requires the custodial parent to report income and that parent is remarried, the stepparent’s income will also be considered. 

If a 529 college savings plan is owned by the non-custodial parent, you may want to consider changing the account owner to be the custodial parent. A 529 plan that is owned by the custodial parent is reported as a parent asset on the FAFSA (worst case impact, a reduction in aid equal to 5.64 percent of the account’s value) but distributions are ignored. If the 529 plan is owned by the non-custodial parent, it is ignored as an asset, but distributions count as untaxed income to the beneficiary on the FAFSA (reducing aid eligibility by as much as 50 percent of the distribution). Having a 529 plan owned by the custodial parent will reduce the impact on eligibility for need-based aid.

Generally speaking, a child of divorced parents will qualify for more financial aid if the custodial parent is the parent who earns the lesser income.  This may be a factor that parents want to consider when determing custody of their older almost college bound children.  However, if parents live in different school districts and the children attend public school it may be suspect for the custodial parent to live in one school district and the minor child attends school in the non-custodial parent’s school district.  Also, know that you may be asked to provide a court order demonstrating custody and/or a custody agreement so you need to make sure you take care of obtaining agreements and court orders before applying for financial aid. Attorney Geraldine Welikson Hess and Hess Family Law can assist clients with any initial or modification of custody needs.

While January has traditionally been the month when FAFSA applications can begin to be filed, starting with the 2017-2018 school year the FAFSA application can be completed as early as October 1st of the previous year.  Click here for more information regarding changes to the FAFSA during 2016.  If you have questions about the FAFSA or CSS Profile you should contact a financial aid expert or FAFSA directly.  

Sources: Paul Bishop February 12, 2016 Want More Financial Aid?  Get a Divorce 

Emma Johnson September 9, 2015 College Financial Aid Advice for Divorced Families 

     After months, or in some cases years, of negotiations and perhaps litigation, your divorce is final. You are exhausted emotionally and financially and are ready to put your divorce behind you. However, before you forget about the past there are important financial and legal documents that you need to review to make sure they reflect your current marital status. For example, unless you have agreed to maintain your ex-spouse as the beneficiary of your life insurance policy, you will want to update your beneficiary designation.

Five Things You Need to Know About Divorce and Applying for College Financial Aid

If you are separated or divorced and have children preparing to go or already in college it is important for you to understand how divorce may affect your child’s college financial aid. Lynn O’Shaughnessy wrote an article for CBS Money Watch, listing five things you need to know about divorce and financial aid.

Where the child primarily resides matters:

The parent with whom the child resides primarily should be the one to fill out the Free Application for Federal Student Aid (FAFSA), which is required when requesting college loans. The non-custodial parent’s income is irrelevant for financial aid purposes. If the child lives with both parents an equal amount of time, then the parent that has spent the most money on the child’s care would be the one to fill out the FAFSA.

Residency is determined based upon the date the FAFSA application is submitted:

If the FAFSA application is submitted on March 1, 2014 then you must look at the 12-month period between March 1, 2013 and March 1, 2014 to determine where the child primarily resided.

It does not matter who claims the child as a tax exemption or who pays child support:

The only time child support might become a factor is if the child spends equal time with both parents and the amount of child support paid is more than the other parent spends on the child’s care.

Remarriage can affect financial aid eligibility:

If the custodial parent remarries, the new spouse’s income and assets must be listed on the FAFSA. This could potential jeopardize a child’s eligibility for financial aid.

There are different rules for the CSS/Financial Aid PROFILE:

The PROFILE aid form treats divorce differently than the FAFSA. There are approximately 250 private schools that use the PROFILE aid form and typically they want financial information from both parents. How the information is utilized varies from school to school.

(12/02/13)

Worried your Soon to Be Ex-Spouse is Hiding Income?

     Dawn and Kevin have been married for fifteen years and recently separated. Kevin owns a business which he agrees is marital property. Despite the fact that the business thrived during the marriage, Kevin insists the business has been steadily declining. Dawn is skeptical and wonders if business is truly declining or if Kevin is hidding some of the business income.  Dawn worries whether she will be able to prove the real value of Kevin’s business, and Kevin's real income.  

     Dawn understands that Maryland is an equitable distribution state (equitable does not always mean equal), but it is important that she and her attorney determine whether Kevin’s business is really declining or whether he is hiding income. In his article, Hunting For Hidden Cash in Divorce Proceedings,  Ben Steverman discusses how a Los Angeles based forensic accountant, Mark Kohn, finds hidden money.

     Typically, forensic accountants are hired in divorce cases to help an estranged spouse discover hidden business income.  Often income is hidden in the form of fake business expenses. Other times business owners hide income by taking payments in cash and underreporting revenue.  Although a spouse may report a certain salary to the IRS, their lifestyle may suggest a much higher income.  It is important to look at a person’s lifestyle, both pre-separation and post-separation, when determining whether assets are being hidden. Is a spouse’s spending consistent with their reported income? Do they drive expensive vehicles, take high- end vacations and/or live in large expensive homes, but report an income too low to fund thos expenses?  Kohn cites an example of a husband who reported income of $500,000 but was actually earning $2 million. The extra $1.5 million was hidden in phony business expenses, and the cash was used to fund personal expenses.

     If a business owner hires various accountants to handle different aspects of their business and personal affairs, Kohn suggests that a spouse should see this as a red flag. It implies that their soon to be ex-spouse does not want to reveal their full finances to any one accountant.   A business owner can include doctors, lawyers, accountants and restaurant owners.

    At Hess Family Law, we will help you assess your situation and options if you think your spouse is hiding income.

 (07/16/13)

Will Divorce Affect My Homeowner’s Insurance?

            Mary and David recently separated and David is living in an apartment.  Mary wonders if she can change the joint home owner’s insurance policy to her name only.   Since the home owner’s policy is in both parties names, it cannot be changed without David’s consent.   Prior to the divorce David might have limited coverage under the home owner’s policy for the items he took to his new residence, but he needs to consider renter’s insurance. Mary is considering changing the locks and the alarm code for the marital home.  Before she does this, she should consult with her attorney to discuss the pros and cons of taking this action.

             One year later Mary and David divorce.   As part of their settlement agreement, Mary kept the house and David remains in the apartment that is nearby so he can be close to their three children.  The couple agreed that David would take ½ of the artwork and antiques, as well as one of the computers.   David also took his jewelry, including a Rolex watch and diamond cuff links.  Mary and David wonder what they need to do with regard to the homeowner’s insurance policy.

            Mary needs to contact the insurance company and determine whether she is listed on the policy.  If not, she needs to obtain insurance in her name.   If the policy is in both their names, she needs to advise the insurance company that David is no longer an owner of the home.  Mary needs to review her personal property limits too.  Since David kept many of their joint assets, Mary may be able to save money by reducing her personal property coverage.  Changing the locks and updating or adding a security system may make her eligible for a discount.  Also, if Mary refinances the home she needs to provide the mortgage lender with any updated insurance information

            Now that David is living in an apartment, he may believe there is no need for home owner’s insurance.  However, David needs to obtain renter’s insurance.   Since David kept ½ of the artwork and antiques and owns other valuable personal property, he will need to make sure his personal property is insured. 

(1/16/13)

Automobile Insurance and Divorce:

         Susan and John have been separated for a few months.  They have agreed that they will each keep the vehicle they regularly drive.   Susan wonders what will happen to the automobile insurance once they are divorced.    Will one of them need to obtain a new policy?   Can John remove her from the policy without her knowledge or consent?  What about their teenage son?  Who will pay for his insurance? Many recently separated or newly divorced couples have similar questions.   Below are some tips for separating your automobile insurance policy. 

        If you and your spouse have joint insurance, that is you are both named as insureds on a policy, the insurance company should not delete one of you from the insurance plan, or change the insurance without consent from both of the insureds.  To be sure, you may want to call your insurance broker or insurance company to find out their policy.

        When you applied for your insurance you informed the insurance company where the automobiles would be primarily garaged, and the average driving distance to work.   If you and your spouse are living separate and apart it is more likely than not that there is a change in either the garage location and/or the distance to work.  You may want to update your policy information although this could result in a change in the premiums.

        If your separation will be for an extended time, you may want to consider separating your insurance policies prior to your divorce.  From a liability standpoint this could be for the best since you could each be held responsible for each other’s liability in the event of an accident while you are both covered on the same insurance policy.  

       After the divorce, you should get separate car insurance.   If you stay with the same company, you should be able to keep any credits you have for being a safe driver or loyal customer even though you are applying for a new policy.  To obtain the best rates, make sure you compare auto insurance quotes.   Your current insurance company may not give you the best rates after a change in marital status even after any safe driver or loyal customer credits. 

        Typically, insurance coverage for teens is expensive since teens have not had time to develop a good driving record.  Additionally, males under the age of 26 typically have higher rates than females of the same age.   Usually the easiest and least expensive way for a teen to obtain auto insurance is for a parent to add the teen to their policy.  A parent can add a teen to their policy by listing them as a driver, or, if the teen has his/her own vehicle and the parent is also on the title of the teen’s vehicle, then the teen’s vehicle can be added to the parent’s policy.  Either way, a parent’s rates will increase.   Usually, if a child resides more frequently with one parent then the child should be covered by the insurance policy of that parent.   If the child is spending a lot of time with both parents and uses both parent’s cars rather than the teen’s own car, then it might be wise to have the teen insured on both parent’s insurance.   If possible, you should consider whether the expense to cover your teen will be shared, and if so equally, or if one parent will pay the premium.  If the cost of insurance for a teen is a new expense, and child support is calculated as an “above guidelines case”, meaning the parents combined income is $15,000 gross per month or more, then a child support modification might be appropriate.  

(12/10/12)

Health Insurance Coverage Options After Divorce.

Health insurance is a concern for many divorcing parties. If you are not the policyholder of the family health insurance policy, it can be stressful ensuring that you have coverage after divorce.   Your ex-spouse cannot continue to maintain you on his/her employer sponsored group health insurance policy after divorce.   While your soon to be ex-spouse may be able to provide a COBRA policy through their employment, the cost may be prohibitive, and depending on the terms of your settlement or Court Order, you may be required to pay those expenses.  Also, COBRA coverage is for a limited time.  At some point you will need to secure your own health insurance.  

If you are employed check with your employer regarding health insurance options.  Research individual policies through private insurance companies.  And, don't forget to check with any organizations to which you belong to see if they offer a group health insurance policy.  Group policies are usually less expensive than individual policies.  It is important for you to learn your options and the cost.  You want to make sure your future health insurance costs are considered in your budget, and that the future health insurance expense is considered when evaluating alimony or spousal support issues.  

Click here for more information on maintaining your health insurance after divorce.  For Maryland's mini-cobra rules, Click Here. 

(10/20/12)

Social Security Benefits May be Important Financial Planning Tool  in Divorce:

Americans receive social security benefits based on their own quarters of work and earnings or their spouses.   If you divorce after ten years or more of marriage either spouse can claim benefits based on the earnings of the other. In order for you to qualify, your former spouse must be at least 62 years of age. If your former spouse has not applied for retirement benefits, but can qualify for them, you can receive benefits on his or her record if you have been divorced for at least two years. Spousal benefits are usually ½ of the employee’s benefits.   If you receive benefits based on your former spouse’s earnings record, their benefits are not reduced. If you remarry, you generally cannot collect benefits on your former spouse’s earnings record unless your later marriage ends, either by death, divorce or annulment.

http://www.socialsecurity.gov/retire2/divspouse.htm

Now you can get your Social Security Statement online. The Statement provides:

• Estimates of the retirement and disability benefits you may receive;
• Estimates of benefits your family may get when you receive Social Security or die;
• A list of your lifetime earnings according to Social Security’s records;
• The estimated Social Security and Medicare taxes you’ve paid;
• Information about qualifying and signing up for Medicare;
• Things to consider for those age 55 and older who are thinking of retiring;
• General information about Social Security for everyone;
• The opportunity to apply online for retirement and disability benefits; and
• A printable version of your Social Security Statement.

http://www.socialsecurity.gov/mystatement/

In addition to helping with financial planning, the online statement also provides a convenient way to determine whether your earnings are accurately posted to your Social Security records. This feature is important because Social Security benefits are based on average earnings over a person’s lifetime. If the earnings information is not accurate, you may not receive all the benefits to which you are entitled.

If you are going through a divorce, it is important to have all of the financial facts. Consider obtaining your social security statement, as well as requesting that your spouse provide his/her social security statement.

 (6/5/12)