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Ways To Protect Your Credit During A Divorce

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Divorce can cause a range of emotions from anger to sadness to relief. Divorces can be both mentally draining and time consuming. As such, sometimes finances can be an afterthought. As things get hectic, it is a mistake to forget about your credit situation. Before we start going through the tips, here’s a bonus tip: pull your credit report. You will be using it a lot to prepare for your divorce

Below are some ways to protect your credit during a divorce as well as a brief analysis of California Family Code Section 2040 and the automatic restraining orders that take place to help protect your finances:

Know ALL your credit and debit lines

When couples are married for many years, it is easy to forget about that random department store credit card you and your spouse opened years ago. Since you’ve pulled your credit report, go through it and review it, and make sure you understand what is on it. An individual account in your name means you may be solely responsible for the debt. A joint account means you and your spouse will likely share responsibility for paying off any debt on that account. An authorized user means the account is held individually by one person who allows another to use the card, but who may not be responsible for the balance. Note the difference and proceed accordingly (Experian.com).

Monitor remaining joint accounts

Sometimes joint accounts cannot be transferred easily, such as a mortgage. In this case, assume your spouse agrees to continue paying the mortgage on the home you own together. You will want to ensure this is properly documented in the divorce agreement, but in addition, you will also want to monitor those joint accounts.

Ask your lender to send you a copy of the joint account’s statement each month. Some may do it automatically, while others may allow access to account statements and records online. Do this even if your ex has agreed to make the payments, that way you can catch any missed payments before they damage your credit (Experian.com).

Create a post-divorce budget

One of the most difficult parts of a divorce for many people is that their income typically decreases (especially if you’re moving from a dual-income household to a single-income household) and expenses increase. Some people tend to get in over their head with expenses rapidly stripping their income, either from divorce expenses or perhaps from frivolous spending stemming from the emotional turmoil of divorce.

The best thing to do is create and track a monthly budget that includes your steady income and all expenses. Mortgages, utilities, credit card payments, auto loan payments, property taxes, insurance, etc. Unfortunately, you may be faced with making some hard choices if you find that your expenses exceed or come close to exceeding your income, but it is better to know ahead of time rather than accumulate a huge pile of debt that you will then be stuck with. (Divorcesupport.about.com)

CA Family Code Section 2040: What Are The Automatic Restraining Orders In California Divorces and Legal Separations?

Family Code Section 2040 sets forth what legal professionals often refer to as the "ATROS" - automatic temporary restraining orders in the Summons. At the moment that a spouse or domestic partner signs the Petition for Dissolution of Marriage or Domestic Partnership, Legal Separation, or Nullity of Marriage, they become bound by the contents of the Summons which must accompany the initial filing. Page 2 of the Summons has the exact language of Family Code section 2040. Once the Summons is served upon the Respondent, they likewise become bound by the ATROS. Failure to comply with section 2040 can result in contempt citations or allegations for breach of fiduciary duty (legalinfo.ca.gov).

The Summons reads as follows:

“STANDARD FAMILY LAW RESTRAINING ORDERS

Starting immediately, you and your spouse or domestic partner are restrained from

1. Removing the minor child or children of the parties, if any, from the state without the prior written consent of the other party or an order of the court;

2. Cashing, borrowing against, canceling, transferring, disposing of, or changing the beneficiaries of any insurance or other coverage, treats including life, health, automobile, and disability, held for the benefit of the parties and Their minor child or children;

3. Transferring, encumbering, hypothecating, concealing, or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life, and

4. Creating a nonprobate transfer or modifying a nonprobate transfer in a manner that affects the disposition of property subject to the transfer, without the written consent of the other party or an order of the court. Before revocation of a nonprobate transfer can take effect or a right of survivorship to property can be eliminated, notice of the change must be filed and served on the other party.

You must notify each other of any extraordinary proposed expenditures at least five business days prior to incurring these extraordinary expenditures and account to the court for all extraordinary expenditures made ​​after these restraining orders are effective. However, you may use community property, quasi-community property, or your own separate property to pay an attorney to help you or to pay court costs.” (courts.ca.gov)

The most important exception is the right to use the community property assets or bank account in order to hire a party's attorney. The legislative intent is to encourage parties to be able to retain competent legal counsel for their divorce or legal separation, but fees are limited to what is reasonable and a spouse who does so is required to account to the other for how the money was spent.

Another provision of section 2040 that is difficult to enforce and sometimes gets abused is the end of “3” which permits parties to dispose of assets "in the usual course of business or for the necessities of life." The wording is very vague and thus difficult to measure. Since governments cannot and should not micro-manage the daily lives of people in divorce, there is an element of voluntary compliance with the ATROS. We hope that spouses and domestic partners will behave honorably, but many don't.

Finally, there are important consequences to the disposition of jointly titled, right of survivorship interests in real estate or personal property that are important to recognize: If property is held in joint tenancy and one party dies before marital status has terminated (i.e., the parties become "unmarried"), the other spouse inherits the entire property.(divorcesupport.com)

Credit and finances can be very complicated. It is always best to consult a specialist before making any decisions. For more information, please contact The Law Office of Matthew J. Rudy for a free 1-hour consultation.

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Guest Saturday, 20 October 2018