by Leah Hadley

 

Are you faced with debt and divorce? Divorce can be scary, but when you’re faced with both debt and divorce, it becomes even more complicated. Know that you are not alone. Many couples find themselves knee-deep in debt and have no idea what to do with it in their divorce.  The best option for shared debt in a divorce is to pay it completely off. Unfortunately, for many, this is not an option. So, what are the risks and what should you do?

If you are faced with debt and divorce, here are some important actions to consider:

Run a credit report.

This is a crucial step in determining just how much debt you have, and it can also help determine if there is any debt that you weren’t aware of. We don’t like to think the worst, but it’s an unfortunate truth that hidden debt can be a common and unwanted surprise.

Use marital assets to eliminate debt.

Once you determine the amount of shared debt that you have, see if you can pay any of it off using marital assets before the divorce is final. This may not be possible, but if you can pay off any of it, or even pay down a little, it will be beneficial in the long term.

Refinance in your own name.

Plan to refinance in your own names, separately. If one spouse is keeping the house or car, it’s wise to have that spouse refinance the loan or mortgage in that spouse’s own name. While your final decree may show that a specific spouse is now the “owner” of said item, the creditors don’t care if both parties are still listed. The creditor will still come after both of you if payments are not made.

Cut up and close out joint credit cards.

Cut up and close out all joint credit cards. This is a crucial step to avoid one spouse using the card in the future. Even if you have a balance, you can still call the card company and close out the account to avoid any additional purchases being made. While this is an important step, in some cases, I would caution you regarding the timing of doing this.  You may want to first consult with your CDFA about your specific situation.

Have a written backup plan.

Have a detailed backup plan written out in your decree when one spouse has not been making payments or is filing for bankruptcy. This happens more often than we’d like to think. As with other loans and mortgages, credit companies don’t care what’s written in your decree. If both of your names are on a credit card, you are both responsible. If your ex-spouse fails to make payments or files for bankruptcy, they will come after you for payment. It’s important to have a detailed plan of action for this scenario, including holding the non-paying spouse responsible for paying fees, if you have to return to court.

We don’t begin a marriage expecting to divorce, nor do we consider this scenario when we buy a house or car or open a line of credit with our partner. It’s important to be aware of your debt as you move through your divorce and to make educated and fair choices for both parties. Enlisting the help of a Certified Divorce Financial Analyst is a wise choice to assist you through this process.

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Leah Hadley, CDFA, MAFF, is Founder and President of Great Lakes Divorce Financial Solutions. She is a trained Mediator, a Certified Divorce Financial Analyst (CDFA), and a Master Analyst in Financial Forensics (MAFF). Leah began her career in the investment and financial services industry in 2006 and currently educates and empowers clients to make wise financial decisions, including through the divorce process. She is Co-Chair of the Center for Principled Family Advocacy’s Mediation Practice Group and is also a member of the National Association of Women Business Owners (NAWBO), the PTA, and the Parma Rotary.

This article was originally published on the website of Great Lakes Divorce Financial Solutions.

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