My husband and I have decided to divorce after 20 years of marriage, and I'm wondering about our joint finances. When should we separate our joint bank and credit-card accounts? Should I apply for my own credit card? And if one of us were to run up large balances on the joint credit cards, would both of us be responsible for paying them?
The way the two of you interact during the earliest stages of your divorce will set the tone for the entire process. Handled improperly, your divorce can be unnecessarily contentious, prolonged and costly, and settlements can be unfair or unworkable. Aside from your major economic goal -- to financially survive your divorce -- you and your husband will most likely need to continue to interact once your divorce has been finalized. Unnecessary emotional scarring during the divorce process can make this much more difficult.
Too often clients come to me after their divorces have been finalized. This is a major mistake. Working with a financial planner in the earliest stages of divorce can help you focus on your long-term situation, and empower you to make better and more informed decisions during the process. Although you undoubtedly have legitimate emotional issues, your future finances should not be controlled by ignorance, anger, or emotional pain. Although it's not always easy to do, the more business-like you are during the divorce process, the better off you are likely to eventually be -- emotionally as well as financially.
You've raised some important issues. The bottom line is that you and your husband are still financially connected, and with this connection comes certain risks. For example, credit-card companies will hold both of you personally responsible for joint credit-card debt. If one of you decides to go on a spending spree or fails to make timely payments on any debts, the financial consequences to the other party can be disastrous. The best way to deal with this problem (assuming that the two of you are still able to work together) is not to unilaterally close or freeze all of your joint accounts -- this will only raise the stakes -- but to try to work with each other to minimize the risks.
Here are some suggestions. First, make sure that each of you has a complete set of financial documents. It would probably be best to close any joint credit-card accounts. However, if you have not already established credit in your name, you should do so before the existing accounts are closed. In the interim, a formal written agreement between you and your husband on the short-term use of these accounts or other potential sources of marital debt (such as equity lines of credit) would be helpful. You should also open individual bank accounts and separate whatever cash you can reasonably and quickly agree upon. Investment assets that can not easily be separated should be frozen by calling and writing to the respective financial institutions. If there's a need to maintain a joint checking account, you should probably formalize in writing the purposes of the account and require both signatures on any future checks. Any existing ATM cards should be destroyed. To further reduce individual exposure, the titles on any large accounts, including the marital residence, should be changed to "tenants in common." Finally, your safe-deposit box should be jointly inventoried and frozen if necessary.
Although joint handling of the above matters can increase the likelihood that your assets will remain intact, it isn't without risk. It you have doubts that the two of you will be able to work together honestly and amicably, you should seriously consider immediate action to separate your finances. This will probably increase hostility, but the long-term benefits may outweigh the costs.
Carl M. Palatnik, Ph.D., is a Certified Financial Planner and a Certified Divorce Financial Analyst in private practice in Smithtown, NY. He is president and a practitioner member of the Association of Divorce Financial Planners, on the board of directors of the Family and Divorce Mediation Council of Greater New York, and a member of the Institute for Certified Divorce Financial Analysts.