Divorcing with Debt  

Divorce is a trying time for all parties involved.  There are many important financial decisions that are directly correlated to the divorce that must be attended to during this difficult time.  While there is no offer of solace for your divorce problems, here are the steps and cautions you should adhere to, in order to navigate your way financially through these troubled waters.  Divorce will be a trying time in your life.  Make sure to not let it also be the start to more debt problems. 

Video: What happens to our debts when we divorce?

Where to Start 

Start from the beginning. Gather all existing debts; include those which are joint and your personal ones also.  Make a list on paper and keep it.  Identify the joint ones and your personal ones and keep those separated, or clearly identified as your sole responsibility.  A good solution if you want to make sure there are no debt surprises during your divorce settlement is to request your credit report for both you and your spouse.  This is the most effective way to clearly see what accounts each of you have open and also if there are any older ones that either party is responsible for still.  Request a free copy from one or all of these sources:

Equifax Credit Information Services
Wildwood Plaza, Suite 500
Marietta, GA 30067

Experian Consumer Assistance Center
P.O. Box 749029
Dallas, TX 75374

760 Sproul Road
Springfield, PA 19064
1-800 916-8800

Joint Debt 

Joint debt during a divorce is complicated and will be the subject of many of your negotiations with your spouse.  The first and foremost thought you must have is to put the brakes on immediately.  Stop incurring any and all new joint debt.  Any joint credit cards that you currently have should be destroyed.  If you wish to close them off completely, keep in mind you will need to have the cash in hand to pay them off.  Another option to mitigate damage is to simply have the spending limits lowered to a mutually agreeable sum.  Have your joint accounts frozen if possible by your bank until the financial portion of your marriage has been settled.  This could obviously cause immediate cash flow problems for both of you, if you have no other individual sources of cash.  If this is a problem, there is a joint signature option.  Contact you bank and request that all withdrawals will now require both your signatures.  This will keep you both informed as to what the other is doing with each others money. 

Video: Handling mortgage payments after divorce

Settlement and Assignment 

During your divorce proceedings, you will reach a point of negotiation over existing debt. This is included during the financial settlement portion of your divorce, and will include all debt, credit cards, loans, mortgages, etc.  During this phase, these amounts will be assigned to one party or the other and determination on payment will be made in the following ways: 

You will both agree to pay them off immediately with joint cash you currently have in an account of some sort.  This obviously is the cleanest and most preferred method, however not an easy option for most.

  1. You can agree to settle the bills yourself.  Take the financial responsibility of the debt in exchange for more assets to be assigned to you during the divorce.  Either spouse can opt for this.
  2. You can agree to be equally responsible for your debts.  This is a risky solution as your credit history will be dependant on your ex-spouse making payments on time.  While there are options to mitigate this risk with letters indemnity between you and your spouse, better to not take the shared settlement option at all.