Financial Tips After Divorce In The State Of Florida
Now that your divorce is finalized, here are a few tips that will help you get on top of financial matters so you can have a fresh start and peace of mind.
KEEP YOUR RECORDS
It is difficult to overstate how important this is, but you should make it a habit of keeping digital copies of both your divorce decree and the marital settlement agreement (MSA) together with your financial records. Scan all pages into PDFs, and keep copies in several places....email them to yourself, use cloud storage, and/or store one copy on your thumb drive or an external hard drive, etc. If you have misplaced them, contact your divorce attorney or Florida family law attorney to help you obtain a copy.
Divorce can often be an emotionally painful and draining process, but this step should be reasonably simple. I'm reminded of what my best friend told me after her divorce was over, and that is, "I have been through a LOT with my ex, and this is my proof of that this chapter in my life is over, so I keep it readily available at all times for anyone who asks”. Speaking of which...
How long should I keep copies of my divorce case?
You should be prepared to keep these court documents at the ready for at least 10 YEARS along with your other financial documents. At some point in the future, a lender will require this documentation when you are applying for a new loan. Having it scanned and ready is handier and more mentally satisfying than it seems.
SEVER ALL REMAINING FINANCIAL TIES AS QUICKLY AS POSSIBLE
The next step is to untangle any lingering financial ties to your former spouse. You certainly don’t want your former spouse to have the ability to cause you any financial harm in the future, even if it’s by accident. After all, a divorce is about getting a fresh start. Keep in mind that although the marriage may be over, your creditors have no way of knowing this, so they still hold you financially responsible for the debts you incurred prior to or during your marriage.
The good news is that in most cases, it’s fairly easy to cut these ties. Remember to always use your Marital Settlement (MSA) as a blueprint as a “to-do” list. If you’re not sure of how to interpret this document, ask your divorce attorney or family law attorney.
Okay, now that we’ve covered the basics, let’s dive into the basic steps:
UNDERSTAND YOUR FINANCIAL SITUATION
STEP 1: Understand your financial footing: ACTIVE DEBTS
Get a Copy of your Credit Report (FREE) –Start by getting a copy of your credit report. Head over to: www.annualcreditreport.com. This is a safe site. In fact, it's the website recommended by the Federal Government for consumers to obtain a FREE credit report without penalty to your credit scores.
Small warning: this website may try to convince you to purchase your credit scores. Don't bother--you do not need your scores for this. You only need a copy of your credit history, and that is 100% FREE.
Print out your credit report and review - Once you've printed out your credit report, grab a pen and a highlighter. Identify any remaining ‘joint credit’ items. This includes car loans, credit cards, and especially if the mortgage was in both of your names. If you're not sure if something is "joint", look for the letter "J" next to the of the creditor. If it says "individual", then it means that this account is in your name alone. Flag any "JOINT" accounts with a highlighter or circle with a pen. These will be the accounts that you'll need to address with each creditor.
Active Credit Cards – Contact your credit card company and explain your situation. They may allow you to remove the spouse with their consent. If not, then—depending on terms of your MSA—either you or your spouse will need to open a new account and perform a balance transfer.
Active Auto loans – If you were awarded the vehicle and the car was financed jointly or solely in your ex-spouse’s name, then you will need to either refinance the vehicle, sell the vehicle. Contact the auto loan servicer and explain your situation.
STEP 2: Understand your financial footing part 2: MORTGAGE / HOUSING DEBTS
Although a mortgage is technically a credit debt, it deserves special consideration for a number of reasons, and needs to be handled with care. When it comes to a home with an existing mortgage, there are two big things you need to know: The Title and the Mortgage/Note. Here's the difference:
TITLE – Title, in this case, means ownership of the home. Any person whose name is on the warranty deed that is recorded in public records has ownership and survivorship interest in the home. IF a person's name appears on the title of the home, it means that they have equal parts ownership interest in the home with the other names on the title of the home, even if they have no responsibility for the mortgage payments. A person whose name appears on the title of the home may--or may not--be financially responsible for the monthly payments on the mortgage.
MORTGAGE / NOTE – A mortgage identifies who is financially responsible for making the monthly payments, including property taxes, homeowners insurance, along with any homeowners association dues. Any person who is responsible for the monthly mortgage payments is automatically on the title of the home.
Was your name on the MORTGAGE PAYMENT or just the TITLE?
If you’re unsure, simply look at the names on your monthly mortgage statement.
If your name appears on the mortgage statement, then you bear responsibility for the monthly payments---and chances are good that you’re automatically on the title of the home too (unless your removed yourself at some point during the ownership via something called a quit claim deed).
If your name is not on the mortgage statement, then you may or may not be on the title.
In cases where your ex-spouse owned the home (without your involvement) prior to your marriage, then chances are that your name would not be on title--unless your ex-spouse took the active step of formally adding your name to the title of the home after you became married--by a process called a quit-claim deed. Most spouses do not always take this step, because they believe that their marriage certificate takes care of everything; however spouses should consider using a quit claim deed to add their spouse to the title of the home. This makes things much easier for survivorship/probate reasons, and/or if you ever intend on refinancing the home in only the new spouse's name down the line.
That said, if you bought the home as a married couple using a mortgage, then your name would have automatically been added to the title of the home, whether or not you have any financial responsibility for the monthly payments.
The bottom here is that if there is an active mortgage on the former marital home, and one of you is keeping the home, then there is usually a strong case for refinancing the home. Do not procrastinate on this!
Here are some general guidelines to determine if refinancing is necessary.
If the existing mortgage is JOINT, meaning both of your names are on the monthly statement, then the home MUST be refinanced in order to separate the debt from the credit report(s). The spouse who is awarded the home, must refinance the home in their name, and the other spouse must surrender their interest in the home via something called a quit claim deed.
If the existing mortgage is solely in the name of the spouse who was awarded the home, then the other spouse may remove their interest via a quit claim deed, with or without a refinance. Whichever way the court has determined in the marital settlement agreement.
If the existing mortgage is solely in the name of the spouse who was NOT awarded the home, then the home must be refinanced into the name of the spouse who was awarded the home.
If the court determined that any equity must be paid out between the spouses, then chances are that the home must be refinanced, a home equity line of credit added, and/or sold and the equity split according to the terms of the marital settlement agreement.
Here are two more rules of thumb:
If YOU were awarded the home… You may need to refinance the home on your own name (or sometimes with a co-applicant) to accomplish this.
If your FORMER SPOUSE was awarded the home (and both of your names appear on the monthly mortgage statements) Insist that your spouse refinance on their own as quickly as they can, so that your credit rating is not in jeopardy in the future. For instance, if this is not done and your spouse makes a late payment 3, 4, 5, or even 15 years from now on any joint credit…then it is YOUR credit rating that could be in peril, and this could have massive negative repercussions to your own financial future.
Be smart and stay on top of this until it is done. If you find that it is not being done in a timely manner, then contact your attorney for guidance. If you did not hire an attorney, then contact the family courts to seek guidance or consider consulting a family law attorney.
CHANGE YOUR TAXES
Filing single vs married may have Federal income tax implications. The best advice here is to immediately notify your tax preparer to let them know that your marital status has changed so they can guide you. Here are a couple things to discuss.
Tax Returns – You need to contact your tax preparer when you go to file your income taxes. Have your divorce decree and marital settlement agreement (MSA) handy. The separation of finances and real estate assets, along with attorney fees, court costs, etc. should be mentioned with your tax professional.
Self-Employed? Being self-employed can have tax implications as well, especially if your former spouse was involved with the business, or had ownership interest in the business.
OTHER LIQUID ASSETS, OBLIGATIONS AND PERSONAL PROPERTY
Bank and Investment Accounts - For the rest of your liquid marital assets, including checking, savings, money market, stocks, bonds, trusts, retirement accounts, annuities, pensions, etc. follow the terms set forth in your marital settlement agreement. If you are unsure how to do this, contact your divorce attorney, family planning attorney and/or your financial advisor. If you did not use an attorney, then contact a qualified financial planning professional.
Financial Obligations - including debts such as auto loans, credit cards, credit lines, etc. Follow the court instructions in your marital settlement agreement.
Child Support and Alimony - including children child, alimony, spousal support, financial support, etc. Follow the court instructions in your marital settlement agreement. Note, child custody and/or child support can have Federal Income Tax implications, so again be sure to talk with your tax professional as soon as possible!
We hope these tips are helpful. If you need help with any mortgage-related questions and need some help sorting all of this out, we would love to help and we can help with all of your post-marriage refinance needs. (the home must be located in the state of Florida for us to assist you)
Derek Bissen Loan Originator NMLS#365627 Unconventional Lending Program Director
NOTE: We are not a law firm. The advice in this article is of a general financial nature and should not be misconstrued as legal advice. The information here should not supersede or replace any advice by a qualified divorce attorney, divorce lawyer, family law attorney, tax preparer, certified public accountant (CPA). The mortgage-related advice in this article pertains to home with mortgage liens, not homes purchased via cash or otherwise owned free and clear.