How Do You Handle Financial Debt During a Divorce?
If you’re getting divorced, you need to know how to deal with financial debt, keep your assets, and start rebuilding for retirement.
These tips for protecting your money are for divorcing couples who want to equitably split assets and liabilities — and focus on the future.
First, check out Robin Williams’ quotation about divorce:
“Ah, yes, divorce…from the Latin word meaning to rip out a man’s genitals through his wallet.”
Ouch – but many husbands and wives would agree that divorce wreaks havoc on personal finances and retirement plans! According to some financial experts, one million Americans divorce every year. More than 80% of divorcing couples cite “debt and financial distress” as the primary reason their love relationship failed, according to an American Bar Association survey.
Research shows that most families suffer financial hardship after divorce.
For more in-depth financial advice for divorcing couples, read Divorce & Money: How to Make the Best Financial Decisions During Divorce.
8 Tips for Dealing With Financial Debt When You Get a Divorce
Assess your debts and liabilities with a credit report
When you’re getting divorced, you need to see yourself as your creditors do. Online (go to MyFico) or by phone, you can request a “tri-merge” credit report (a summary from all three major credit reporting bureaus). Make a note all of your existing shared and individual liabilities. Settle (or get a judgment) on how you’ll allocate these responsibilities.
Plan how to handle your home mortgage loan
If you own a home, the mortgage is likely your most significant monthly payment. An important tip for dealing with financial debt when you’re getting divorced: understand how you’ll resolve monthly mortgage payments, and how you’ll divide the home’s value – whether one partner buys out the other now, or the home is to be sold after children are grown. Divorcing couples need to protect their money by thinking long-term.
Budget for bill payments, loan payments, credit card debt, etc
Create a detailed budget, based on your new income level, and use free cash flow to pay off debts. Most people find the most efficient way to pay off debts is to first pay off smaller bills – starting with under $100 – then pay off loans and unsecured debt, such as credit cards. An effective way to deal with financial debt when you’re getting divorced is to pay off the debt that has the highest interest rate first.
Make sure your ex is paying his or her bills – and not ruining your credit
If possible, make sure the divorce agreement requires your ex to report on bill and credit card debt payments. There are important implications for you personally if your spouse does not meet his/her end of the bargain on liabilities allocated through the divorce proceedings. Knowing how to deal with debt when you get divorced involves thinking ahead and writing certain provisions into the divorce agreement.
Call all creditors for shared accounts
Make sure you call all your creditors (credit cards, gas cards, department store cards, phone cards, etc.). Close the accounts if you are not carrying balances, or remove your name from jointly held accounts. Remember that for jointly held credit cards, and for any other debts incurred during the marriage in community property states, you have shared liability – and thereby share any potential negative credit rating impact. This means that if your ex-husband or ex-wife doesn’t deal with financial debt after the divorce, it could come back to haunt you and your credit rating.
Check with the IRS about dealing with financial debt after divorce
If you owe back taxes, be aware that the IRS does not have to honor a decision from a divorce judgment. This tip for protecting your money for divorcing couples may involve consulting a tax expert to help with your divorce tax planning.
Focus on rehabilitating your credit and financial health
Getting a divorce isn’t just about letting go of someone you love — it’s about rebuilding financially and having a savings plan. Knowing how to handle debt when you get divorced can involve reinvesting any proceeds or equity that come out of the divorce proceeding. Be careful to build yourself a retirement fund for the future because you may need to start over.
Consider hiring a debt resolution firm
If you find yourself in financial trouble because of the divorce, seek help immediately from a reliable, professional debt resolution firm. Be sure to investigate the company you choose to assist you, and seek out a company that operates for the consumer, which is markedly different from credit counseling, debt consolidation, and debt management firms.
For more divorce tips, read How Do I Move On After a Divorce?
Are you dealing with debt and getting divorced? Comments welcome below…
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