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Divorce and Your Financial Wellness

Divorce, like marriage, is comparable to a business institution financially. When you marry, it is like entering a merger, and when you divorce, it is like dissolution of a partnership. Since the divorce is often devastating emotionally, one tends to fast forward things to just see it be "over with" and put it behind them. This is worse when children are involved, but even more important because with children comes the necessity of financial clarity and future security.

Five Steps to Safeguard Your Interests

1. Make a List of All the Information You Need To Put Together

You cannot even begin to appreciate the value of a list in this particular matter. This will help you get not only all the paperwork in order, but also give you a bird's eye view of your finances. Here are a few suggestion of what can be on your list:

1. Mortgage and loans
2. Tax returns
3. Medical coverage
4. Joint bank accounts
5. Pension/ retirement funds
6. Wills
7. 401K plans/ IRA
8. Credit cards
9. Investments and savings
10. Safe deposits

This is by no means an exclusive list. Each couple has their own financial scenario; the point here is to put you on the right track. You need to make a list of all the assets you have accumulated post marriage and come to an understanding of how these will be divided.

2. Get a Copy of Your Credit Score from All Three Bureaus - Equifax, TransUnion And Experian

Why is this step vital? You need to know where you stand individually after the divorce. In many cases, loans, mortgages and other liabilities are conglomerated among spouses. All joint accounts should be separated, and your credit report is the most realistic place to start. This is also a good place to learn about your future liabilities - post divorce - so you can plan for the same. This is critical if either spouse decides to sabotage an account by stopping payment on it - even though they are responsible for it. This is definitely a place where you need complete clarity.

3. Take Stock of the Future Budget and Your Sources of Income

This is very important if your family was one where one of the spouses worked and the other took care of the family. The economically dormant spouse will need to understand the future financial responsibilities that will come with single status, and work out ways of earning an income in that range. The settlement of the divorce will also have a bearing upon this aspect - especially if the children’s custody is with the spouse who does not have an immediate income.

4. Take Pro-Active Steps to Build Your Credit

Building credit is a time consuming and often cumbersome process, but it needs to be done. It is often a good idea to seek the help or guidance of a professional organization - provided they belong to reputed affiliations such as the ECRA (Ethical Credit Repair Alliance) and/or the BBB (Better Business Bureau) - so you will know how best to go about this task. Since divorce is very emotional, you will need an organization that will keep your interests at top priority.

5. Ensure Financial Self-Sufficiency

This is a logical outcome from the above. You need to have enough money to subsist once you revert to single status. Is that possible immediately post divorce? If not, look for alternatives and help from friends and relatives until you find financial stability. Ensure that you de-link yourself from your spouse and all concerned parties - banks, credit bureaus, trusts, etc are informed in writing.


A Ratio That You Need To Know About

We hear such a lot about financial discipline, debt control, value for money, living within one’s means and the like. Did you know that there are indicators that will tell you whether you are okay, in the danger zone, or about to be wiped out financially? Come; let us take a look at what the debt to income ratio tells you.

Your liabilities can be calculated (and are by banks and financial institutions when you apply for a loan) by dividing your total debts to your total income and assets. This is an amazing indicator - because it tells you not only where you stand with your finances, it will also tell you whether or not you need to get help. Take a look at the table below:

1. Liabilities are the sum of your total loan payments including bills and credit cards -
say this is ‘A’
2. Assets are your total annual income, including your bonus and other extra income -
say this is ‘B’.
3. Debt to Income ratio = liabilities divided by assets = A/B = DR (debt ratio)

The debt ratio ideally should be under 50%. Banks consider a 36% and lower a good ratio. Therefore, in case you are looking for a mortgage and the like ensure that you bring your ration to 36% or lower. At this point, you will be able to bargain with the bankers for the best possible terms and conditions.

How Do You Keep the Ratio Down?

The knowledge about this indicator is nothing if it cannot be put to good use. So, how do you keep the ratio within the ideal limits? There are many, many well worded tips that you will know by heart by now - stay within your means, do away with credit cards, downsize your budget and so on. Here are a few tips that are not so well known, but produce excellent results.

1. Divert your money from the source - most people are unable to put aside money for savings once it comes into their hands. Things simply crop up and the money is spent in spite of the best possible intentions. To avoid this risk, why not divert the money directly from your pay check to the investment or saving plan so you will not be tempted to spend it.

2. Use interest free (or lowest possible rate) money for purchases as much as possible - if you use your credit cards, ensure that you pay the outstanding balance in full when the bill comes due. In this way, you have 45 days interest free credit! Try borrowing from friends and relatives for your purchases and be prompt with the repayment. This too, is interest free money. Always look for ways to lower the interest rate on your loans and especially credit card debts. You will save a bundle in this way.

3. Invest in assets that appreciate over time - buying a car, a house, a boat and the like are all great purchases that improve your net worth. However, your car and most of the consumer items you purchase today depreciate over time. In about five years, these same assets will be valued at 40% the original cost or less. The trick is to look for assets that appreciate over time - such as real estate, gold, diamonds, stock, bonds and the like. These will increase in value over time, lowering your ratio considerably even if you do not accelerate it any other way.

Take the advice of professional organizations in this aspect - such as credit repair agencies - and try to understand the basics of financial well being. Caveat - always go for accredited agencies. Look for their listing in the BBB (Better Business Bureau) and the ECRA (Ethical Credit Repair Alliance).

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