One of the most common questions I am asked by both men and women who are newly separated is 'how do I protect myself financially?'
Aside from taking steps to ensure your partner doesn't fritter away your hard-earned savings or dispose of assets, you should consider protecting your credit rating when you separate and divorce.
Any debts accumulated jointly before you formalise a legally binding financial settlement may affect your credit score, even if initiated by your ex-spouse. The issue often flies under the radar when there are long delays in formalising a property and finance settlement.
If your name is on the original application, a credit agency will also hold you accountable for payment, even if you were unaware or did not approve their spending.
The following steps are recommended to protect your credit rating:
1. Close joint bank accounts.
2. Use available funds to pay down joint debt.
3. Pay off and cancel joint credit cards.
If the debt on the card(s) can’t be paid off, inform the issuer that you have separated and ask them to put a stop on the account, so there can be no further transactions. Credit card interest is high. Ensure you meet the payments on time to reduce your ongoing credit exposure. Talk to your bank about consolidating your credit card debts to a lower interest rate facility to make repayments manageable.
4. Resolve mortgage debt
Generally, it's advisable to pay down any mortgage debt you have. However, it may not be the best option, given market conditions or other extenuating circumstances, for you to sell larger assets such as the family home, investment properties or shareholdings, but it is imperative you agree in writing as to how the debt and ongoing expenses for those assets will be serviced.
Make sure no additional funding can be redrawn on your mortgage and that you both receive the statements during the time you’re separated but still own the property.
In some instances, for example, to clear mortgage debt, it may be prudent to dispose of assets before the settlement. This can be done by mutual agreement, or one party can make an application to the family court for an interim order that instructs the sale of the property. If a property is sold during negotiations, the net proceeds of the sale remain part of the divisible asset pool.
If you believe your spouse may dispose of property or actively erode the value, take legal advice about your most effective options, which may include seeking interim orders to have the property (and mortgage) transferred for you to manage pending a final settlement, or putting a caveat on the property. Do seek expert advice before pursuing either possibility as both may have far-reaching consequences.
5. Transfer any other accounts into a single name.
Liabilities such as utilities, and store accounts accrued before you reach a settlement, are considered joint unless expressly agreed otherwise.
In order to minimise interest fees and consolidate debt, make arrangements to pay outstanding accounts from joint funds when possible. Accounts for phones, utilities, leases, rates, personal and car loans and store credit should all be reassigned to each of you individually or closed.
6. Keep a record of all financial undertakings.
For ease of future reference, ensure you keep paperwork related to your separation, including cancellations and repayments or structural changes to any accounts.
7. Notify credit reporting agencies of your separation and any steps you have taken to date to separate accounts.
8. Check and record your credit score at the time of separation
Request a free report once per year. Apply for a copy by contacting a national Credit Rating Body (CRB) such as:
Veda: MyCreditFile.com.au - Phone: 13oo 762 2o7
D&B: CheckYourCredit.com.au - Phone: 13oo 734 8o6
Experian: Experian.com.au - Phone: 13oo 783 684
9. Sign up for a facility, which sends you a copy of your credit rating annually and notifies you of any changes to your file.
This may prove useful to alert you to potential issues if a financial settlement is drawn out over a long period of time.
10. Protecting yourself in the short-term
If you’re considering leaving or suspect your partner may leave you, ensure you will have access to funds. This is particularly important if you’re wholly reliant upon your spouse financially. There have been cases in which a bank freezes a joint account belonging to couples who are in dispute.
If you’re dependent upon your spouse to transfer funds to cover living expenses, or you are a subsidiary card holder on a credit facility, perhaps your spouse will have a change of heart and cut off funding without notice. This has commonly occurred when one spouse tries to exert power over the other to coerce them into accepting an agreement.
If at all possible, keep enough cash ready to support yourself and service your debt repayments for several weeks. Keep it in a safe place for emergency use only.
If funding has been cut off and you are unable to make any payments due, contact the credit, or service provider. Ask to speak with the person in the accounts department who deals with financial hardship and explain your circumstances. Most are willing to make alternative repayment arrangements.
Published by Christine Weston
Divorce Resource The information in this post is general in nature and is not legal or financial advice.
All individuals should seek professional expert opinion before making decisions relating to their own circumstances.