Navigating Divorce and Debt: A Guide for the Newly Separated
Going through a divorce can be an incredibly difficult and stressful time. Your whole world feels like it’s been turned upside down. On top of the emotional turmoil, there are so many practical and financial considerations to deal with. One of the biggest worries for many newly separated folks is how to handle debt and finances when divorcing. This guide from the friendly financial experts at Delancey Street aims to help make this tricky subject a little easier to navigate.
Taking Stock of Your Finances
One of the first steps after separating is to get a clear picture of your financial situation. This means listing out all assets like your house, cars, savings accounts, retirement funds, investments, etc. Then do the same for liabilities – mortgage, credit cards, loans, unpaid taxes and bills, etc. This gives you an overview of what needs to be divided up as part of the divorce settlement. It may seem obvious but it’s important to close any joint credit cards and bank accounts when you first separate, to avoid one partner running up debt that the other will be liable for.
Understanding How Debt Works in Divorce
When it comes to splitting up debt in a divorce, there are a few key principles to understand:
- Debt incurred jointly during the marriage is generally considered “marital debt” and will be divided between spouses.
- Debt brought into the marriage by one partner remains the responsibility of that partner.
- Debt incurred individually during the marriage usually remains the responsibility of the partner who acquired it.
- Courts have discretion to divide debts equitably, not necessarily equally, based on factors like income disparity.
It gets tricky if debt was incurred jointly but only benefited one spouse, like if one partner racked up credit card debt on shopping sprees. The court may assign responsibility for repaying that debt to the partner who spent the money.
Strategies for Managing Debt During Divorce
Here are some tips to help you get a handle on debts when going through a separation:
- Prioritize securing housing – try to keep up mortgage/rent payments to avoid losing your home.
- Pay minimums on all shared debts to avoid late fees and hits to your credit.
- Consider balance transfers to get 0% intro APR and consolidate higher interest debts.
- Talk to creditors directly about reduced payments or hardship programs until the divorce is finalized.
- Avoid taking on new individual debts or joint debts prior to the divorce decree.
It’s also crucial to maintain payments on priority debts like taxes, child support, and alimony during the divorce process to avoid liens or other legal action.
Negotiating Debt in Your Divorce Settlement
When negotiating your divorce settlement, debt division is a key issue to address. Here are some strategies to consider:
- Offer to take on more shared debt in return for keeping certain assets.
- Argue for an unequal division if one partner caused the debt through reckless spending.
- Propose trading off – you take the credit cards if your ex takes the car loans, for example.
- Suggest third-party mediation to find creative solutions if you can’t agree.
- Accept that you may need to compromise instead of getting the exact outcome you want.
It’s also important to specify exactly how and when debt payments will be made as part of the settlement. You want to avoid situations where your ex fails to make agreed payments, leaving you on the hook.
Coping with Credit Score Impacts
With major accounts being closed and debts shifted around, your credit score will likely take a hit during a divorce. Here are some ways to minimize the damage:
- Don’t close joint accounts right away – wait until the divorce is finalized.
- Split credit limits on joint cards instead of closing them entirely.
- Become an authorized user on your ex’s oldest credit card account.
- Get added as an account holder for utilities, rentals, subscriptions, etc.
- Limit new credit applications until after your divorce is finalized.
The good news is credit scores tend to rebound within 6-12 months after the divorce. And over time, as long as you make payments on time, your credit will continue to improve.
Seeking Legal and Financial Help
Dividing up finances, assets, and debts during divorce can get extremely complicated. It’s highly advisable to work with an experienced divorce attorney like those at Family Law Group who can help protect your interests. You may also benefit from consulting a financial advisor like the experts at Money Management International who assist with issues like budgeting and rebuilding credit.
Going through a divorce is never easy, but taking the right legal and financial steps can help minimize the long-term stress and financial impact. With time and self-care, your finances and your life can return to stable ground again.
At Delancey Street, we’re always here to help with compassionate, judgment-free guidance on any money questions life throws your way. Wishing you the very best on your journey ahead.