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Divorcing Your Finances

Dollar Stretcher (featured column)
by Gary Foreman

Q: I am about to get a divorce.  We currently have a joint account as well as separate accounts.  Can my soon-to-be ex withdraw an enormous amount (more than half) legally from our joint account even though we agreed (verbally, not in writing) that the joint account would remain in effect for paying bills (mortgage, maintenance, utilities, etc.) since we both are still living in the home.

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A: We're sorry to hear about Nicole's pending divorce. Sadly she's got plenty of company. According the CDC (Center for Disease Control) there were approximately 1.1 million divorces in 2004.

Nicole is right to be concerned about her finances as she goes through the divorce process. Just as money is often the source of marital problems, it often causes headaches during the separation and after a divorce has been finalized. Even couples that have made an effort to keep their finances separate will probably find some areas where their financial affairs have become entangled.

The simple answer to Nicole's question is "yes" her Nearly-Ex can make major withdrawals from a joint checking account.

In a joint bank account, either person can withdraw all of the money. Regardless of any agreements between the parties. That's true even if it were Nicole's account before they were married, she's made every deposit and her Nearly-Ex was added to the account merely for convenience. Even if her Nearly-Ex puts it in writing, he still can go down to the bank and take every cent. Either before or after the divorce.

A joint account is only good for people who completely trust each other. Usually that's not the case in the middle of a divorce.

What can Nicole do? One solution would be for each of them to write a check for one half of each household bill. More work? Sure, but a whole lot safer.

Nicole really needs to look beyond their checking account. Joint debts can become a real problem. The lender will look for payment from anyone listed on a debt. The same thing is true for mortgage payments and credit card accounts. If both of them are on the loan, the lender can go after either of them for repayment. For the entire loan. Regardless of what Nicole and Nearly-Ex agreed during the divorce.

And just because the court orders her Ex to make payments doesn't guarantee that he won't lose a job and fall behind. If she's still on the loan, the lender will start calling asking her for payment. Any missed payments will reflect on her credit score. Short of making the payments herself, there's really not much she can do but plead with her Ex to catch up.

Any loan or credit card that has both Nicole and her Nearly-Ex listed should be closed out or refinanced by one or the other. That might not be easy. For instance, the bank won't think that a loan to one of them is as safe a loan to both. The reason is simple. Now the lender only has one possible source of payment. Not two. Because of that the lender may want a higher interest rate.

Nicole and Nearly-Ex should also retitle any jointly owned property. Owning joint assets with your Ex can be troublesome. Even if the divorce was friendly. Joint ownership creates both privileges and responsibilities that aren't shared very well by divorced people.

For instance, both parties must agree to sell any joint property. Nicole wouldn't be happy if a year from now her Ex refused to sign off when she wanted to sell her car. But if both names are on the title, she'll need both signatures to sell it.

Once all that's completed, Nicole will also want to check her other financial documents and make the appropriate updates. Her Ex might be listed as the beneficiary of her life insurance and IRA. Nicole will also need an updated will. Don't forget bank safe deposit boxes or auto and home insurance policies.

Is that a lot of work? Sure it is. But just like divorce means separating a lot of possessions and memories, it also means separating your financial affairs.

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