Home Equity Credit

Freya’s Financial Facts Regarding Divorce

 West Coast Woman

Published November 2006

Close That Home Equity Line of Credit NOW!

Many couples fall into the trap that banks unintentionally set when they arrange a home equity line of credit on their new home at the time of purchase. It all sounds very logical: open the line of credit now so it is there if you need funds later for home improvement or other perfectly legitimate purposes. And of course you are happily married when you do this, happy to have a new home and all the excitement that goes with it.

Things go well and you in fact do not use the home equity line, it just sits there, not costing any money nor producing any reminder paperwork and pretty soon you forget about its’ existence. Your spouse however remembers that it is there. You have signed all paperwork and there are even checks put away somewhere.

One day your spouse, who is managing the money in the marriage, decides things are a little tight. So he or she begins writing checks against the home equity line. The checks do not require your new approval or notice to you that they are being written. The checks in effect represent a marital decision that you are making with your spouse to spend money that you are not even aware of.

Of course simultaneously your marriage begins to deteriorate. You spend the next two years in marriage counseling, while your spouse continues to spend down the home equity on your lifestyle, or maybe their secret lifestyle.

Finally, you file for divorce and in the financial documents of your spouse you see a massive debt against the house that you thought would provide equity to be divided, and instead you are dividing debt.

This scenario can be avoided by simply not agreeing to an open ended line of credit against your home. You can always go and get equity out of your home if necessary at a later date. American consumers who for years have treated their homes like ATM machines, are now having to face the music of having less equity in their homes and paying higher interest rates. This is particularly destructive in the case of divorce, when it is normal for both parties to have to reduce their lifestyle anyway.

You can always argue the case that the spouse was in fact dissipating marital assets and that you should not be liable for the debt. You might win that argument in a court room. The problem is that a) you are in a court room so it is a gamble and b) it costs time and money to do that. It remains more prudent to not get into that situation in the first place.

Along those same lines, in your marriage you should be aware of the financial situation your spouse is in, even if you keep separate checking accounts. If your spouse is running up credit card bills during a marriage, he or she could still argue that the debt is marital, and that by you not objecting to it was tacit approval to its existence.

Sit down with your spouse on a regular basis and establish the following:

  1. The total value of your assets.
  2. The total debt level and how much it costs each month to service that debt.
  3. The total borrowing power in existence, whether from open credit card accounts, home equity lines or other sources.
  4. Income levels from jobs and businesses owned.

None of this need be confrontational in nature and you should be willing to share information to create a transparent financial picture.

Obviously if I am writing this article it is because we have seen the scenarios described above all too often. Don’t be afraid to get the answers to your questions now before it is too late.

Feel free to call us if you this information causes you to question your own financial picture, whether you are thinking about divorce or not. We may be able to assist you in getting back on the right track, no matter what your situation is.

If you are headed for divorce then you will need expertise in helping you determine what your new financial picture will look like. We are happy to meet with you as a couple to assist you in an amicable divorce or as an individual if that works best for you.

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