Financial considerations when facing separation

It is a well-known fact that financial problems are a leading cause of divorce. According to studies published in the Journal of Political Economy, couples that experience any significant and unexpected change in income—positive or negative—are at risk of divorce. Furthermore, there is evidence that couples’ financial problems are linked to increased levels of stress, conflict, and decreased levels of marital satisfaction.

With so many families struggling financially as unemployment rates continue to rise, it’s ironic that less people are calling it quits. According to the American Academy of Matrimonial Lawyers, 37 percent of the divorce attorneys polled reported that they’ve see a drop in cases during the recession. Divorce can be incredibly expensive, which could be why more and more couples are finding ways to work out their problems.

If the economy is taking a toll on your marriage, consider a separation. A little time and space could do wonders for your relationship. While it may be hard for people involved in an emotionally-draining separation to clearly think about their money, it is absolutely imperative.

Pull a copy of your credit report. You will want to review entries carefully and either close all joint accounts or change them to individual accounts.

Alert your secured lenders. Make sure your lenders know about your marital status and instruct them not to allow any changes without your permission. You may also want to “freeze” joint bank accounts or divide any funds into two individual bank accounts.

Develop a plan to pay down debt. If the relationship ends in divorce, your divorce decree is an agreement between you and your spouse (not your creditors) on how your debts and assets will be divided. Paying down debt now will help to eliminate some of the burden of having a big debt load after a divorce.

Be realistic about the future. Create a financial plan for each potential outcome. Consider hiring a trusted financial advisor for help; be certain to ask about your advisor’s experience with divorce and marriage separations.

Because a marriage separation can be a very complex process, consider marriage counseling. A marriage counselor can help you see another side to marriage, resolve differences and help to open the lines of communication. Marriage counseling can help you rebuild your relationship or help you decide if divorce is the best option. Either way, you owe it to yourself and your marriage to try every possible solution.

Tanisha (Warner) Smith is a former communications manager at MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.