If you are facing a divorce, there are likely many concerns running through your mind. Aside from the emotional toll, dealing with debt and divorce can also weigh heavily on anyone.
Handling debt during a divorce can potentially impact your finances. That’s because your marital assets – jointly held debt – can be divided between you and your spouse. Managing debt during a divorce means understanding every aspect of the process.
Every divorce is different, and there’s no one-size-fits-all solution. We’ll start off by noting that this information is for general guidance only – it is not legal advice.
A divorce does not negate responsibility for debt. You are still responsible for paying any debts you have. There is jointly held debt and personal debt. You don’t receive a grace period with creditors simply because of your personal situation. Start planning as soon as possible. Paying off debt during a divorce should remain as important as purely legal matters.
Here are some tips to consider from the start of the divorce process:
- Be realistic about your money situation. While it may be tempting to use your divorce as an opportunity to spend money you don’t have, remember you already have responsibilities to juggle.
- Begin tracking your finances. All of the data you collect will be helpful as you plan on handling debt during a divorce and after. Knowing your debt amount, payment schedules, and interest rates will help you make better decisions about how to manage your finances and not make risky financial decisions. Each state has its own laws related to debt and divorce. Have an attorney examine every aspect of your divorce. There are key distinctions related to whether debt was incurred before, or
during the marriage.
Debt incurred in one person’s name before marriage or after the date of separation is considered “separate debt” and typically is not subject to division during divorce.
We'll concentrate on one well-known example involving debt and divorce. A prenuptial agreement is made prior to the wedding. The couple decides how assets should be distributed if the marriage ends in this form of arrangement. Another law related to debt and divorce is “equitable distribution.” In this instance, a judge divides marital assets and debts evenly. If your divorce is based on an equitable distribution, your spouse will likely have to pay off your debt before the divorce settles. Jointly held debt should be proactively considered, regardless of how your divorce is structured.