How to Manage Debt after Divorce

Debt and Divorce

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Living Within Your Means

Divorce & Debt - How to Divide What’s Owed

So things just didn’t work out between you and your spouse? Happens to thousands of Americans every year. Divorce can be a drag-out, nasty, yelling and screaming, massive expense that includes lawyers, insults forced counseling, and the shattering of your credit score or it can be a simple, nearly painless process of separation for you and your spouse. A key difference between the two types of divorce is communication. A willingness to hash out the differences between you by yourselves rather than getting multiple attorneys and all of your friends involved to choose sides and add fuel to the fire.

One common question often asked by couples is how should they fairly divide up the debts that were built up during the marriage so that no one person is responsible for everything? Well, there are several methods of handling debt fairly in the case of debt. Some of these methods require a good amount of work and action while others can be handled with a simple agreement. Which method you should use will depend on your relationship with your spouse and the types of debt that you have to divide up.

Option 1: Refinance the Responsibilities

If you have debts that the two of you built up together such as credit cards or car loans, the best way to divide them up fairly is to “take them away” each according to his or her need or desire. For example, if you both had cars in the marriage and you each will be keeping one, then agree between you two to take your own cars (along with their outstanding debt). You should refinance the vehicle loans so that they are in your name only and your spouse will no longer be financially responsible for the debt. If only one of the vehicles still has debt on it and the two of you originally agreed together to purchase it, then whichever spouse is not taking that vehicle (or debt) away, should offer the other a payment for it, either in trade of other debts or in assets, or cash.

Option 2: Trust as You Once Used to

If your credit situations are not the greatest then you may find yourself unable to refinance a debt so that it is in your name only. In this case, your two options are to either agree to pay off the debt before your divorce is finalized and cancel the account, or if you cannot afford to do that, then you can go with the honor system and trust that your spouse will manage the debt properly and not bring further harm to your credit by refusing to make payments on it.

Option 3: Let the Judge Decide:

Judges around the country draw millions in salary to make these kinds of difficult decisions for divorcing couples. Determining who owes what and who should walk away with what debg responsibilities is a decision that only a trained professional should be making from the outside. The judge may order some of your assets sold, however to pay for the debt still owing on others. Usually a judge will order a house sold if there is one, since that cannot be easily divided by two people who no longer wish to spend their time together. If the home has equity in it the home can be sold and the proceeds used to pay for the divorce and trial fees. If the home still has more owed on it than it is worth then your estate should be divided in such a way as to pay off whatever is owed on the loan, possibly by selling other items, so that you can sell the house, or simply have one person buy out the other.