In part 2 of "Attaining Financial Independence," we cover "All Things Credit" including:
Let's discuss the scenario where one party wants to remain in the home, but they are the spouse who earns less.
According to Michelle Oddo of Oddo Group, a lending expert with 25 years experience, get advice from a lender as soon possible. The quicker you sort out housing, the easier it will be to address other divorce issues. It's hard to worry about anything else if you don't know where you, or your children, will sleep.
A lending professional determines if the spouse who wants to stay in the marital home has enough income or expected child and spousal support to sustain the mortgage. For conventional loans, a spouse would need to prove six months of income or support to be refinanced. If it is a FHA or VA mortgage loan, the spouse will only need to show three months of expected support payments to continue for three years.
If the spouse does not have the income or support payments, and it's a conventional loan, Oddo recommends refinancing since mortgage rates are still low and conventional loans are not assumable.
Michelle Oddo recommends a secured credit card. Even one with a low limit of $300, used to pay recurring charges can quickly help either build or repair credit.
Ms. Oddo warns spouses in this situation to be wary of paying off the balances and closing the cards. As soon as they are closed, you lose that credit history. If you end up wanting to secure another loan post divorce, it is better to have a credit history rather than none at all.
When a client's credit situation is overly complicated and beyond the advice of a lending professional, the Oddo group can refer you to a trusted credit repair company that has assisted their clients.
Ms. Oddo: It all depends on the kind of payment plan they have selected and whether Freddie Mac or Fannie Mae loans are involved. Typical payment plans are income based and conventional student loans. Those with an income based payment have a higher debt to income ratio since it takes them longer to pay down the principal on the loan. If a party is in deferment on their student loans, i.e. not making any payments at all, their debt to income ratio is likely too high to support a creditor letting them open up a line of credit in their name and they would need a co-signer.
Credit and debit cards are used in nearly identical ways. However, there are some significant differences you need to understand.
When you spend with a credit card, you are spending borrowed money! Sometimes people use credit cards for monthly purchases or to take advantage of points or rewards. Be sure to pay credit cards off in full each month so that fees aren’t incurred. Don't leave small balances on credit cards that build up over time and carry interest charges.
Debit cards are tied directly to your checking account. If you don’t have the funds to cover the deduction and don’t have overdraft protection, the charge is declined and you are charged a hefty fee. With overdraft protection, the bank honors the deduction and you pay interest to the bank.
One of the most significant differences between the two is the liability limit for fraudulent transactions. Under the Fair Credit Billing Act, with a credit card, you have no or minimal liability for unauthorized charges, and have recourse if what you purchased was damaged or not delivered.
With a debit card, however, your liability depends largely when you report the unauthorized charges to your bank. The worst case scenario is if you do not discover the fraudulent charges for more than 60 days after receiving the statement showing the activity, you could be held responsible for all charges after the 60 days. Even IF you do alert the bank within the 60 day period, you could still be responsible for up to $500. This is why it's important to periodically check your credit card charges online even before the statement is issued online or sent snail mail.
The Certified Divorce Financial Analysts at the Divorce Resource Centre of Colorado are trained to recognize and help divorcing spouses prepare for the financial realities of divorce and plan their futures. It only takes a 20 minute exploratory call to find out more.
Forms include: Asset Worksheet, Household Goods Inventory, Financial Checkup, Priorities Worksheet and Mandatory Financial Disclosures.
As Certified Divorce Financial Analysts who work with divorcing couples, we see many spouses who want to bury their heads in the sand even when their post divorce financial reality is staring them in the face. We believe that when you face your finances clear eyed and informed, with a forward facing plan, you can not only gain confidence but work towards financial independence post divorce.
Financial independence is when you have enough financial resources to pay your living expenses without being dependent on someone else or being employed. We recognize financial independence might seem like an audacious goal but it is possible with the right resources and commitment. You can gain the knowledge and lay the framework during and after your divorce.
Financial independence is NOT financial literacy. Financial literacy is the ability to understand and effectively apply various financial skills, including personal financial management, budgeting, and investing. Investopedia
In this blog we cover:
Before you head off on a road trip, you need to check the gas tank, right? One of the most important rules, and we can't stress this enough, is to PAY YOURSELF FIRST by contributing to your savings each month. If you don't look out for your future and instead pay all other expenses first, you might not have enough money to "make your trip."
Understand what your net take home pay is and how much your fixed, variable and discretionary expenses are. Fixed expenses are the same amount every time they're due and variable can change depending on usage, think utilities or water for instance.
As far as discretionary expenses go, if it's not groceries, rent or mortgage and utilities, it's essentially discretionary. A discretionary expense is something you can absolutely live without. For examples and a sample worksheet, see here.
Once you understand how much money you have coming in and going out, you are ready to implement a spending plan. A spending plan includes inputting your net income, your expenses and carves out what you can set aside to reach your goal. Your goal does not have to be financial independence, but without a goal, you are essentially monitoring inputs and outputs with the only "goal" of not being in debt. We want more for you and you should want that for yourself. Check out some other worthy financial goals.
Goodbye to adding machines, reams of receipt paper and spending late nights at your kitchen table and welcome to smart phone apps. It's important to find the one that works best for your lifestyle so be prepared to try more than one. The Divorce Resource Centre of Colorado recommends YNAB.com, Mint, Quicken and Pocketguard.com. YNAB stands for "You Need a Budget," Mint.com is a widely popular and intuitive app, Quicken has more bells and whistles and integrates with your business and Pocketguard.com is like a watchdog always looking to save you money.
Your online banking platform may divide your expenses up into categories but there is a usually a lot of manual work on the user's end to ensure that it's an accurate representation of where your money is going. The choice is yours to use an app, or your bank or both, but the important part is to keep track regardless.
Traditional big bank options in the Denver Metro Area include Wells Fargo, Chase, and 1st Bank. The benefits of a big bank are the number of locations and ATMs and that they are usually first adopters when it comes to online banking features like Zelle and online bill pay. Credit unions are nonprofit member-owned version of a banks that, rather than pay their Presidents and CEOs outrageous salaries, return the profits in the form of lower rates to their members. Online only banking options we recommend include ally.com and capitalone360.com. To help you evaluate online banks, click here.
We understand concerns about the online safety of financial information, but with precautions, banking online is not only safe and convenient but can also save you headaches during and after a divorce. As long as you set up strong passwords that do not include any personal identifying information, store this information in a place only you can access, you are banking smarter and safer. You will only have to log on and not wait on hold to talk to a human, or a robot screener, when you have a question or an issue. It also means that your hardcopy financial statements don't end up at your home when you've moved to a new residence during the divorce.
Watch out for overdraft protection no matter what financial institution you choose. While having it can help when you've overdrawn your account, there's no such thing as a free lunch and many banks' overdraft fees will make you feel like you paid for a steak dinner with a bottle of wine.
When it comes to savings accounts, there are many to choose from. However, for our purposes, we're focused on deposit savings accounts and money market savings accounts. The main difference is that money market accounts may earn a higher interest rate since they are funded differently than deposit savings accounts. But this is not always true so check the fine print and shop around.
The FDIC, aka Federal Deposit Insurance Corporation, insures all bank accounts up to $250,000. Note that this is per accountant not per customer so if you're a high roller, be sure to split your money into various accounts.
Our parting tips to face your financial fears head on include:
1) Just like in college or high school when you had an assignment or paper to complete, make sure your environment is set up in a way that invites calm. If you need to light a candle, play some light music or reward yourself with a glass of wine afterwards, cozy up with your statements and get clear on your priorities.
2) Break up tasks that seem overwhelming into three manageable parts. When you complete one part, you become more confident and able to handle the entire process.
The Divorce Resource Centre of Colorado will give you the tools to take control and gain confidence in your post divorce financial reality. We take a deep dive into your finances, the tax implications of divorce and provide a cash flow analysis to clients. Call us at 303 468-5626 or schedule a time to talk that works with your schedule.
Documents include: Asset Worksheet, Household Goods Inventory, Financial Checkup, Priorities Worksheet and Mandatory Financial Disclosures.
Logistical and financial reasons top the list for why a couple who is undergoing divorce or who has already completed the process, might agree to share a home. Especially when one or both of the parties employment situation has changed for the worse or neither party can afford to live on their own. Given the staggeringly high average home prices in the Denver Metro area that appear to be unfazed even by global events like COVID19, former couples face the very real prospect of sharing space for weeks or even months.
Here are seven tips for same space survival with your soon to be ex-spouse:
Draw boundaries within your home. Define your personal space and ask your spouse to honor it. Get to know your their personal space and extend them the same courtesy. This can head off potential arguments and just makes common sense. After all, you’re not sharing a bed anymore, so why would you continue to commingle your personal items?
Remember this is not Logic 101. There will be no- if then statements like, “Joe will move out if and when he secures employment that pays x amount per month.” If there is no goal line, one or both of you may be reluctant to move out anytime soon. It may seem counterintuitive, after all, why would they want to share space when the relationship has deteriorated? Think about a nightmare roommate you’ve had. The same question applied to them. They may have had their own motivations to stay put or worse, no motivation at all, so a projected move out date can only serve to motivate them to keep their word.
Even if you’ve always texted to ask what they want for dinner, refrain from hitting send. Start sweating the small stuff. For example, without noticing it, you are still ending sentences with “honey” after so many years together. Slow down and be deliberate with your actions and words.
Treat your new arrangement as you would a roommate and create an agreement for both parties to sign. Cover payment of the mortgage, maintenance tasks and if one person has done the bulk of the household duties, specify what each person will be doing going forward. Otherwise someone will continue to wash, dry and fold clothes for the other and there may be bleach and shrinkage of fabrics and resentment. If it is important, it goes in the agreement.
Say the above suggestions work beautifully and you and your soon to be ex are getting along swimmingly. You start to become muddled on why you wanted to divorce in the first place. Be clear about your reasons why you want a divorce and make sure to write them down. You can refer back in the moments where nostalgia clouds your judgment.
Set boundaries, set a time and if you have children in the home, a private place to talk. Take turns speaking and if emotions escalate, take a time out. We’re not that different from 3rd graders when it comes down to it. If the topic of discussion is of grave importance, write down what you agree on and what you have not come to an agreement about. Agree to end a conversation after a certain time limit and stay on one topic. Propose more than one solution and remain open to new ways to solve the disagreement.
We suggest that divorce discussions not take place at this stressful time and while confined to the house. There is a better time and place to get into divorce discussions. If there are children involved, consider implementing a child centered pledge.
During times of financial insecurity, more ex couples consider the prospect of co-habitating until they’re both able to transition. We hope you find these suggestions helpful if you or someone you know will be living with an ex.
The Divorce Resource Centre of Colorado team works with clients to prepare them financially and emotionally toward a peaceful solution for both parties. Give them a call at (303) 468-5626 or go online to schedule your 20 minute phone or Zoom call with one of our divorce professionals.
The relationship between certified divorce financial analysts and family law attorneys can be complicated. Each are trained to reach the best possible outcome for their clients and both are regarded as experts in their fields. Despite the appearance of competition, we believe cooperation between attorneys and CDFAs can best serve divorcing spouses.
Attorneys who handle a large number of divorces are not in the business of ensuring that every financial stone has been turned over. Once the divorce is finalized it is up to the parties to make sure the division of assets and any payments agreed upon are made. If a divorce attorney with a hefty caseload sees the value in a certified divorce financial analyst, it is usually only as a post settlement referral.
Attorneys must recognize that their clients assume they are financial experts in addition to being experts in negotiation and divorce law. An attorney must decide if they can be all things to all people. It’s a struggle between being a subject matter expert or wearing many hats. Your clients want to know that you can handle their complicated financial situation but also want to know you can also deftly handle child custody, maintenance and property division too. Lawyers have proven themselves in the study of law, a discipline of staggering breadth and can benefit from bringing in a CDFA with the financial expertise they didn't gain in law school. The client benefits and the attorney has more time to spend on the legal ramifications of divorce without being sidelined with burdensome research.
Many attorneys and CDFAs believe that since they are working with the same clientele, there must be competition and it’s an all or nothing proposition. Either the client works with a divorce attorney OR chooses mediation and works with a CDFA, or other advisor. We believe the choices are not mutually exclusive - but complementary.
Money stresses are often a major contributor to divorce and the financial implications post divorce are best understood and explained by a CDFA with rigorous financial training. If necessary, a CDFA can testify to matters in court as a neutral expert, or may work on behalf of both parties or for one spouse. Contrast this with a paralegal who works at the direction of the lawyer. Your clients will appreciate that you understand the consequences of financial projections and trust your expert opinion to bring in a professional.
While CPAs do an excellent job of estimating tax ramifications today, they are not accustomed to making future projections – like where their clients will live post-divorce or what future housing will cost. CDFAs look at the lost income effects, investment vehicles, and events that trigger taxes as well as the percentage of assets that clients plan to use for living expenses that triggers a taxable event. CDFAs, unlike CPAs, are client facing and expected to be able to distill financial speak into digestible pieces.
Having a working relationship with a CDFA frees up attorneys to focus their time on the legal issues of their divorce cases without learning or relearning financial issues regarding divorce, ie tax implications, cash-flow, etc. Additionally, CDFAs can prevent their clients from signing a marital settlement agreement that might hurt them in the future.
If an attorney makes a financial mistake, they could face a claim of malpractice. Ensure against this by hiring a CDFA since they are certified in all the financial nuances of divorce, including taxation and pension valuation. By working together as a team, the lawyers are able to shift some of their malpractice liability to the CDFA who must maintain professional liability insurance coverage.
The Divorce Resource Centre of Colorado is led by Deb Johnson, a Certified Divorce Financial Analyst and Suzanne Chamber- Yates, a certified divorce coach and Collaborative Divorce Facilitator. Both are professional mediators who have worked with many attorneys in the Denver Metro area.
If you are interested in continuing the conversation of how a CDFA can assist your legal practice, let's schedule a time to talk. You can reach us directly at firstname.lastname@example.org and email@example.com
Selling a home while going through a divorce is unique and not every realtor has specialized knowledge. That's why you may want to hire a realtor who is credentialed in this area. Consider all of the factors that could contribute to financial disaster. First, the marital home is usually the couple’s largest asset. Second, many couples, even if they are not divorcing because of money, are not immune from a financial battle over what will happen to the home. Third, selling a home is already an emotional process and in the case of divorcing spouses, compounded by the emotional and physical separation of divorce. Finally, divorce has an effect on the open communication a realtor needs to facilitate a sale that benefits both parties.
Thankfully, there are certifications you can look for when selecting a relator. One of the most highly respected is CDRE or Certified Divorce Real Estate Agent, bestowed upon agents who complete the Ilumni Institute’s rigorous 5 day certification program. A second certification, offered by Carol Wilson is a Certified Real Estate Divorce Specialist designation. A Realtor uses CREDS or REDS after their name to signify they have completed this coursework.
Questions to Ask a Realtor who Specializes in Divorce
No matter what designation your realtor has, you should ask each agent specific questions about their references, number of homes sold, and experience selling homes during divorce proceedings.
It’s also a good idea to ask hypothetical questions about potential conflicts that might arise and ask how they would handle the situation. For example, what if your soon to be ex spouse wants to spend money to make improvements before the sale but you prefer to sell the home as is? Ask the realtor how he/she would handle this dilemma and evaluate whether they could help come to a solution that both of you can live with.
Realtors who specialize in divorce understand can explain legal jargon and tax issues. CREDS, REDS, or CDRE designated agents are trained in the legal and tax aspects of the divorce process as it relates to real estate. They learn obscure legal rulings, regulations and tax implications. This specific training allows them to help their divorcing clients take advantage of tax laws that are specific to selling a house in the divorce.
A successful home sale during divorce requires more than proficiency in legal and tax implications. After all, the sale is just as much emotional as it is strategic. This is where an agent’s soft skills are tested. If possible, schedule an in person meeting to assess the realtor’s communication skills. E-mails and phone calls only reveal snippets of how the realtor will be able to address your unique situation.
Look for an agent who is fair, level-headed, listens and is good at negotiation. While you could read reviews, any realtor who is worth talking to should be willing to share references from other divorcing couples who they have helped.
Even if your income was relatively consistent before the divorce, there is a good chance that the divorce is going to have financial repercussions.
Post divorce you may need to pay attorney or mediation fees, child support, spousal support, divide up savings and investments, etc. It is possible that you will end up with considerably less money after the divorce or more financial obligations – like taking care of children on your own. A realtor who specializes in divorce is aware of these possibilities and will help you determine what you can afford and if the mortgage payment would be sustainable.
To recap, the sale of your marital home warrants due diligence. Divorcing couples should take the time to interview and select a credentialed agent who is experienced, well regarded, and has the soft skills necessary to negotiate the sale. Despite the need to “wash your hands” of the home, the sale should not be rushed without considering these factors. A realtor who is CREDS or CDRE certified is in the best position to understand your emotional and financial needs.
Even before a marriage is irretrievably beyond repair, one or both spouses may have been hiding money without the other spouse’s knowledge. How common is hiding money from your spouse? If self-reported surveys are any indication, it occurs in roughly one third of marriages.
In 2011, The National Endowment for Financial Education (NEFE) released a study finding that 31% of people who combined finances with their significant other have been deceptive with their spouse/partner about money. Of that 31%, 58% say they hid cash from their partner/spouse.
1. Request a copy of your joint tax return from your local IRS tax office. The cleverest of divorcees may stretch the truth about their after-tax income by directing more money into a 401(k) plan, a deferred compensation plan or a health savings account. High deferrals into these and other savings accounts will lower their take-home pay. Soon-to-be exes will point to this amount to reduce alimony and child support obligations.
2. Regularly log-in to your joint accounts and look for suspicious withdrawals or transfers.
3. Look through credit card statements for overpayments. A spouse who makes an overpayment is essentially using the credit card account as a savings account.
Credit card companies that receive overpayments rarely send the difference back to the cardholder and simply credit the account. Good for them and your spouse, bad for you, because you're in the dark about the financial infidelity they’ve committed.
1) Paypal accounts and Venmo can be used to stash or park money. But just because your spouse has a Paypal or Venmo account that you didn’t know about doesn’t mean they are hiding money, they may have opened it up before you met.
2) Bank statements and credit card statements used to come in the mail but you haven’t seen any in months. Maybe you have found receipts listing the last four digits of an account you don’t recognize.
However, there may be perfectly legitimate reasons for not receiving snail mail or opening a new account. Maybe your spouse wants to go paperless and forgot to pass on the online account information. Or they opened up a new card to get airline miles for a surprise vacation or wanted to save money at the time of purchase and forgot to tell you. But if you are hesitant to ask, you may already have your answer to, “Do I have something to worry about?”
If you’re the “out-spouse,” the spouse who does not deal directly with the finances, simply ask for for copies of all financial records. If your spouse is able to produce all records, the information gathering process might not be too painful.
Sometimes, your spouse simply can’t find the records. If so, the two of you can work together to gather information. With online access to everything nowadays, it’s easy to get account records. You can also send joint requests for records to mortgage companies, banks, retirement plan administrators, etc.
As painful as it is to discover financial decisions were made without you, stashing away money means they aren’t planning on creating a better financial future for the both of you -- and that speaks volumes.
The Divorce Resource Centre of Colorado understands that if couples can’t solve their financial difficulties during the marriage, it is harder for them to agree on financial issues when the marriage has fallen apart. If both spouses understand their financial reality, any decisions made during mediation can be done with each spouses interests in mind.
As Certified Divorce Financial Analysts, we’re trained to understand complex tax issues, IRS rulings, capital gains, dividing pensions, etc. We assist divorcing spouses in every conceivable financial situation you could imagine with an innovative and creative approach that is enhanced by decades of experience.
For an overview about our divorce financial analysis process, click here.
The Divorce Resource Centre of Colorado assists with parenting plans, division of property, financial analysis AND a topic important to all Americans, especially those over 40 - Can you keep your health insurance after divorce?
The uncertainty of healthcare coverage post divorce is an especially worrisome topic for spouses who are stay at home parents or self-employed. Consider that as of 2015, according to the Kaiser Family Foundation, nearly a quarter of women in the United States under age 64 received health coverage through their spouse's employer-sponsored plan.
Thanks to COBRA, even after a divorce or separation, the uninsured party can keep their health insurance from their ex-spouse’s company if it has at least 20 employees, for up to three years after a divorce. Employees should verify this with their employer/plan administrator in writing or an email.
If your soon to be ex-spouse’s Colorado employer has less than 20 employees, you may still be able to enroll in mini COBRA. Like federal COBRA, it is also very expensive for most people because you must pay the entire premium on your own, but your health insurance plan remains exactly the same. Click here for more info on mini COBRA.
Beyond COBRA, we recommend that the uninsured party obtain their own health insurance as soon as possible.
Your options include: Signing up for coverage through your employer if it’s offered. You can sign up outside the regular open enrollment period if you’ve lost coverage from another source, or have experienced a ‘life event’ like divorce.
Your other option is to purchase a policy directly from a health insurance company or your state’s health insurance marketplace. In Colorado go here.
If you are worried that a soon-to-be-former spouse will cancel your health insurance during the divorce, Colorado law has you covered.
Colorado Revised Statutes 14-10-107 (4)(b)(I)(D) forbids the cancellation of health insurance that provides coverage for spouses and dependent children. Additionally, spouses cannot allow the insurance to lapse by not paying the premiums.
The only way a spouse can change or cancel health insurance coverage during a divorce is if both parties are given at least 14 days of advance notice and both agree to the change in writing.
To better understand your options for post divorce health coverage, schedule a time to speak with one of the experienced team members at the Divorce Resource Centre of Colorado. Your pathway to certainty becomes clearer with your first 20 minute complimentary phone call.
If you’re thinking about beginning divorce proceedings, chances are you’ve began thinking about what your financial situation will be after a divorce? Will you be able to afford to keep the home the kids were raised in? Can we afford to support two households? How will the changes in income affect our children?
When it comes to assets, often the family home is a big part of the financial picture and figuring out all of your options might feel overwhelming. So, let’s take a look at what you should be considering when it comes to your real estate investment as part of a divorce..
When we look at the real estate a couple jointly owns or acquired during the marriage, we’re including not only the residence, but also any rentals, timeshares, and land. Depending on the type of real estate, how it is titled, and whose name is on the mortgage, proper disposition of real estate is tricky due to tax traps and financing obstacles.
We also know it is important to do a complete forward-looking cash flow analysis; this helps the client see the future financial picture of home ownership and we help them determine how much they can afford, how much should be used as a down payment vs. be financed.
Sometimes, especially in the current Colorado real estate market, a marital residence must be sold in order to secure another residence, or a residence may need to be purchased as an investment property while still married just to make sure the family has a place to live.
Because this transaction and its timing is so complex, it is of utmost importance that all angles are analyzed, and the impact clearly known; this includes the moving and market readiness costs that are involved and how the marital residence is titled along with other potential issues with lenders. We work closely with Certified Divorce Lending Professionals (CDLP), to help navigate the complex maze of mortgage lending.
Bottom line, yes a home can be sold/bought in conjunction with a divorce, however it must be done with an abundance of caution!