8 Ways to Handle Debt During and After a Divorce
Guest Post by Lyle Solomon
Principal Attorney, Oak View Law Group
Many marital relationships in America end with a divorce. The divorce rate has been 14.9 divorces per 1,000 marriages in the past few years. About 22% of U.S marriages end with a divorce due to financial issues. The debt brought upon during the divorce creates a burden to both spouses as they split. Debt can be divided amongst the two in any manner. In a community property state, debt can be divided equally, even if only one is responsible for the debt incurred during the marriage. The other spouse might not have an idea about it. On the other hand, on equitable distribution states, the debt has to be paid off by the one who incurred it.
Irrespective of how the court has divided the debt payment, the bank would still want you to pay debts in your name. It will always try to stick to the previous agreement. You can be told to pay debts incurred by your partner in joint account credit cards. Problems may arise when you are told to pay the debt, not in your name or held jointly with your spouse. Legal actions can be taken against the spouse who doesn’t follow the court’s order.
How to manage debts during and after a divorce
Here are a few ways to deal with your debts during a divorce.
1. Rechecking your liability:
It is essential to keep a record of your liabilities during and after a divorce. A divorce doesn’t help you get over debts incurred jointly. It is likely to affect your credit score if your spouse lags with payments. If your ex decides to use the joint credit card, you are still liable to pay all those debts. The divorce does not make any change to the credit report. It won’t alter the previous agreements with lenders or card issuers. So, it is necessary to check every joint credit card account and cancel them.
2. Reducing debts:
Both of you decide how to pay off most of the joint debts before you file a divorce. It will make settlement talks trouble-free. It is better to discuss each one’s responsibility. There are many payday loan debt solutions like you can consolidate payday loans or opt for settlement. You can split a credit card joint account by talking to a credit provider. You must do it individually to avoid further denial of credit.
3. Owning a personal checking account:
No matter how weird it sounds, your ex-spouse might drain your joint checking account to destroy your finances. For this reason, owning a personal checking account is the best option. Opening a checking account in your name will keep you protected. Depositing paychecks is the first step. All the automatic payments for credit cards and bills should be generated on your checking account. It will prevent you from paying late payment fees once the joint account is closed.
4. Applying for a new credit card:
Once you close all the joint credit cards, you might want to open a new one. A low-limit credit card will make a good start. It can help you avoid credit card debt. You can slowly increase its limit once you start managing it efficiently.
5. Updating privacy of your accounts:
To protect your account, make sure you take some required measures — update passwords related to bank accounts and debit card PINs to maintain privacy. Security answers should be unique and different from the knowledge of your previous partner. If you have changed or moved out of your last address, make sure you update it with your financial organization. It will help you develop your privacy as you don’t want your ex to peep into your personal details.
6. Rewriting your beneficiaries:
Divorce is not only an emotional challenge but a financial one too. Once you have decided to go through this process, you might consider updating your beneficiaries on insurance policies, retirement plans, and other investment plans.
7. Managing mortgage debt:
It is harder to pay off huge debts like mortgages and car loans. It is often necessary to refinance it in one person’s name. It is renewed on the person’s name who will own the asset in the future post- divorce. If the divorce process is over, the lender will request to change the existing name with the one who will own it. The divorce decree will work as proof. If this process fails, you may need to apply for selling the asset and paying off the debt by talking to the attorney. So, during a divorce, one can’t simply be eliminated.
8. Being responsible at first:
Showing responsible acts can prevent you from damaging each other’s credit until your accounts are closed or separated. Paying on time and not stacking your debt is one such responsibility.
Once you have decided on separation, it is best to understand and maintain some parameters. In many instances, creditors chase people for a debt their ex-spouse is supposed to pay. The creditor can’t care less about the divorce. So, having a backup plan is necessary.
There can be many reasons for a financial breakdown. Divorce is one of them, and it can completely ruin your financial plan. Though it is hard to make such a decision, you should start making some changes in your financial plan once you decide on it. These strategies might help you during a crisis. A completely different mindset with a positive attitude can help you execute these strategies and lead a good financial life even after a divorce.
About the Author: Lyle Solomon
Principal Attorney, Oak View Law Group
Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a Principal Attorney.