Houston Divorce Lawyer & Attorney : Cavers Law Firm : Texas Family Mediation & Adoption Lawyer

During the divorce process many women find themselves in uncharted financial territory.  Sometimes, the husband is the individual in the marriage who takes point in managing the the budget, taxes, investments, estate planning and/or retirement planning. 

If this is describes your situation and you are in the midst of a divorce, now is the time to get a handle on financial issues. 

Fortunately, there is a not-for-profit organization in the Houston area to assist women going through this life changing event.  For more information, visit www.texaswife.org or contact Texas WIFE at (713) 599-1225.

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With the present credit pinch and looming economic downturn, people are looking for an asset they may liquidate or borrow against to ease money woes. Often, this asset is an individual’s retirement plan. An article published in The Houston Chronicle on March 17, 2008 by Shannon Buggs provides excellent insight about the ups and downs of using a 401(k) plan. For a complete text of Ms. Bugg’s article, visit: http://www.chron.com/disp/story.mpl/business/buggs/5621877.html.

From the perspective of dividing assets upon divorce, there is another factor the article did not address, and that is what to do with a loan against a 401(k) plan. Before the plan administrator will make a division, the issue of the outstanding loan must be addressed. For instance: Will the plan participant take his/her portion of the 401(k) subject to the loan? Will the loan balance be deducted equally from each party’s portion? Or, will some other formulation be implemented in the division?

Before taking making important decisions about borrowing against or liquidating a 401(k) account, make sure to obtain all the information you can from your plan administrator, discuss your options with a financial planner, and know the consequences for taking such action. 

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When couples divorce, often the largest asset subject to division is the home. When the home is subject to a mortgage, often the party awarded the home must refinance the note into his/her name in order to absolve the other spouse of financial responsibility. I saw a disturbing story on the CBS News Early Show just this morning about a California woman who refinanced her home following her divorce. When she refinanced her home 2 years ago, the mortgage lender suggested she use an interest only adjustable rate mortgage (ARM). This type of mortgage is reportedly one of the most nefarious lending tools. The consumer now owes more on her home than she did two years ago, and worse yet, the balance owing is more than the value of the home if she could sell it. 

The moral of this story – when refinancing be VERY careful, analyze all documents with care, ask questions, and do not sign on the dotted line if you do not have a good understanding of the financial transaction. Some consumers feel awkward asking questions, or even asking for a second explanation. Take a firm stand and insist that your mortgage lender explain the terms to you for any instrument you sign.

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Credit Freeze – One Method for Protecting Your Credit Before and During Divorce

Prior to and during divorce credit cards often become a hot button issue. Though family law litigants represented by counsel likely have injunctions preventing either party from opening new accounts or spending beyond what is specifically permitted in temporary orders, that is no help to individuals going through the process pro se (without counsel).

An article in The Houston Chronicle on December 10, 2007 entitled Leaving Identity Thieves Out in the Cold, discusses new tools for combating credit fraud perpetrated by identity thieves. What if your spouse (or soon to be ex) is that “thief”? 

One option is to apply for a credit freeze. A credit freeze prevents anyone from taking your social security number or other personal information and opening an account in your name. Fees to initiate a credit freeze are anywhere from $5-$10 and must be initiated with each of the three major credit bureaus (CSC, Experian, and TransUnion). If you need to “thaw” your credit to apply for a new card, car loan, home loan, refinance, etc., then you must request for a specific creditor to be able to access your credit file. This, too, may require a nominal fee. 

Though a credit freeze is an effective tool to prevent identity theft, it is not for everyone. For instance, if you are starting out and establishing your credit, this is not the best option. In that situation, you might opt for a fee-based credit monitoring system where alerts are sent to you when an inquiry is made to the credit bureau. 

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Susan Robicsek, author of the Bankruptcy Law Network recently posted an important article on balanced budgets and bankruptcy.  Since one of the top reasons marriages end in divorce involves financial strain, I think this article may provide benefit to many folks. 

When you rely on credit cards to cover things that don’t come up every month like car repairs, house repairs or medical issues, you have to recognize that your budget is not balanced. These things will come up and shouldn’t be a surprise when they do. In fact, there is little anyone can do to avoid them.
Maybe you use credit cards to buy groceries, because your paycheck goes to pay your other bills, like your rent/mortgage, car payment and credit cards or other revolving debt accounts.

If you are using credit to cover your living expenses or “emergencies”, you are spending more than you make to cover the things that occur in your life. When you have to borrow to pay for things you can’t afford now, you will pay back more when you consider the interest. So if you couldn’t afford to have something to begin with, why will it be easier to pay back more over time?

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When a marriage ends in divorce, the lives of those involved are changed forever. During this time of upheaval, one thing that shouldn't’t have to change is the credit status you’ve worked so hard to achieve.

Unfortunately, for many, the experience is the exact opposite. Unfulfilled promises to pay bills, the maxing out of credit cards, and a total breakdown in communication frequently lead to the annihilation of at least one spouse’s credit. Depending upon how finances are structured, it can sometimes have a negative impact on both parties.

The good news is it doesn’t have to be this way. By taking a proactive approach and creating a specific plan to maintain one’s credit status, anyone can ensure that “starting over” doesn’t have to mean rebuilding credit.

The first step for anyone going through a divorce is to obtain copies of your credit report from the 3 major agencies: Equifax, Experian®, and TransUnion®. It’s impossible to formulate a plan without having a complete understanding of the situation. (Once a year, you may obtain a free credit report by visiting www.AnnualCreditReport.com.)

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