life afterward.
Often “divorce planners” will offer their services to do financial planning, but with strings attached: For example, you may agree to engage them later to manage any investments (brokerage accounts, 401Ks) or proceeds you might receive postdivorce. Such an arrangement might create a conflict of interest. This might result in the adviser designing the outcome so there are assets to manage, as opposed to the best result for a client (for example, keeping your house). Focusing solely on the divorce process, rather than on the potential of asset management, avoids this conflict.
Divorce financial planning is not forensic accounting, which investigates the past and is used to determine the value of assets, such as a business or other investments. It’s a forward-looking process that focuses on lifestyle issues relevant to divorce: For example, divorce financial planners consider respective postseparation financial needs; the paying abilities of the parties; division of assets; and the financial workability of potential outcomes.
Anyone can call themselves anything, but it’s worth your time and safety to understand the level of professionals who are on your team. Your divorce attorney undergoes continuing legal education to maintain his or her license. Likewise, you want a divorce financial planner who does, too.
QUESTIONS TO ASK BEFORE HIRING A DIVORCE FINANCIAL ADVISER
• When did you receive your certification as a CFP, CDFA, or CPA? This is an indicator of experience.
• Do you have a specific background in taxation or accounting? You definitely want your financial planner to understand the tax implications of dividing your assets. This can make an enormous difference in the decision-making and planning process.
• How many divorce cases have you completed? Another indicator of experience.
• Do you have experience in complex property divisions, and if so, will you illustrate multiple scenarios? Many divorce financial planners have software available that allows them to run various property-division scenarios, which can be used to evaluate the best approach for negotiating division of assets during divorce.
• Are you familiar with calculations regarding employee stock options, restricted stock, and/or executive compensation? This is critical if these assets are at issue in your divorce.
• Can I see a sample of the written divorce financial plan you provide to your clients? If the planner is qualified, they should be able to provide you with exemplars of the work they have done in this area.
• When was the last time you testified in court? While you may not need your financial planner to testify in court, it is an indicator of experience.
• Are your credentials or licensing subject to review by government or regulatory agencies? The answer should be yes.
• Do you have any disciplinary events, suspensions, or violations on your record under this or any other name? The answer should be no.
• Are you currently licensed and in compliance with all appropriate governing regulatory agencies? The answer should be yes.
If you are employed and/or already have credit cards in your name, the process of building your credit will be relatively straightforward. Use your credit cards regularly, pay off the balance on time each month, and your credit score will rise. However, if you’re not employed and don’t already have a credit history in your name, or if your credit is lousy, the process is not as simple. New federal regulations are making it more difficult than ever for women with little or no income to establish credit on their own, so prepare yourself for the possibility that securing credit or improving it could be somewhat time-consuming and is likely to require more than simply filling out an application or making a single phone call.
To have a FICO score, for example, you need at least one account that’s been open six months or longer, and you need at least one creditor reporting your activity to the credit bureaus in the last six months. (A VantageScore, from FICO’s biggest competitor, can be generated more quickly.)
Several tools can help you establish a credit history: secured credit cards, a credit-builder loan, a co-signed credit card or loan, or authorized user status on another person’s credit card. Whichever you choose, make sure you use credit in a way that will eventually earn you a good credit score.
Five Ways to Establish Credit
APPLY FOR A SECURED CREDIT CARD
If you’re building your credit score from scratch, you’ll likely need to start with a secured credit card. A secured card is backed by a cash deposit you make upfront; the deposit amount is usually the same as your credit limit. You then use the card like any other credit card: Buy things, make a payment on a bill, and incur interest if you don’t pay your balance in full. Your cash deposit is used as collateral if you fail to make payments. You’ll receive your deposit back when you close the account.
Secured credit cards aren’t meant to be used forever. The purpose of a secured card is to build your credit enough to qualify for an unsecured card — a card without a deposit and with better benefits. Choose a secured card with a low annual fee and make sure it reports to all three credit bureaus: Equifax, Experian, and TransUnion. NerdWallet (www.nerdwallet.com) regularly reviews and ranks secured credit card options.
APPLY FOR A CREDIT-BUILDER LOAN
A credit-builder loan is exactly what it sounds like — its sole purpose is to help people build credit. Typically, the money you borrow is held by the lender in an account and not released to you until the loan is repaid. It’s a forced savings program of sorts, and your payments are reported to credit bureaus. These loans are most often offered by credit unions or community banks.
GET A CO-SIGNER
It’s also possible to get a loan or an unsecured credit card using a co-signer. But be sure that you and the co-signer understand that the co-signer is on the hook for the full amount owed if you don’t pay.
BECOME AN AUTHORIZED USER ON SOMEONE ELSE’S CREDIT CARD
A family member may be willing to add you as an authorized user on his or her card. As an authorized user, you’ll enjoy access to a credit card and you’ll build credit history, but you aren’t legally obligated to pay for your charges.
Ask the primary cardholder to find out whether the card issuer reports authorized user activity to the credit bureaus. That activity generally is reported, but you’ll want to make sure — otherwise your credit-building efforts may be wasted.
You should come to an agreement on how you’ll use the card before you’re added as an authorized user. If the primary cardholder expects you to pay your share, make sure you do so even though you aren’t legally obligated.
GET CREDIT FOR THE RENT YOU PAY
Rent-reporting services such as RentTrack (www.renttrack.com) and Rental Kharma (www.rentalkharma.com) take a bill you are already paying and put it on your credit report, helping to build a positive history of on-time payments. Not every credit score takes these payments into account, but some do, and that may be enough to get a loan or credit card that firmly establishes your credit history for all lenders.
Build Your Credit Score with Good Habits
Building a good credit score takes time, probably at least six months of on-time payments.