Navigating Debt — During and After Divorce

While the old adage “What’s mine is yours” may have worked in marriage, how does it apply in marital debt and divorce? 

Learning how to divide assets in a divorce is one thing, but what happens to the debts accumulated as a couple? 

If you’re already divorced, then the second part — navigating your debt — is still crucial. This post can help with strategies throughout the separation and divorce process.

Financial responsibility during separation 

There are a lot of emotions flying around during the divorce process, but it’s important to take control of the financial process during separation. Chances are, the two of you held several accounts and credit cards jointly, and you’ll want to resolve these joint accounts before the divorce is final. 

Close joint accounts

Start with a comprehensive list of your bank accounts and then mark jointly held. If the relationship is friendly enough, close those accounts with your spouse and appropriately divide the funds. The process may be more manageable If you and your spouse can amicably work through this process together. Of course, not all divorcing couples can do this. 

Once you’ve closed your joint accounts, open an account in your name or transfer the funds into an existing single-owner account. 

Resolve joint credit card debt

Next, investigate the status of your credit cards. Request copies of both your and your spouse's credit report for a comprehensive list of accounts. You can get a free copy of your credit report annually from each of the three national credit bureaus. 

Make a list of credit cards that appear on the reports and other consumer debts, including personal and car loans. Total them up to get a picture of your outstanding consumer debt. At this point, you can:

• Pay them now (if possible)

• Pay them later (perhaps as part of a divorce settlement) 

• Do nothing 

Ideally, the two of you can agree to pay off balances and remove one another as authorized users on the card. You may choose to close the cards so that neither party can run up balances on the other person’s cards. There can be ramifications to credit scores when closing accounts, though, so factor that into your decision-making. 

If you have specific questions about your financial responsibility during separation, ask an attorney to get the best advice for your unique situation. 

How to divide assets in a divorce

Divorcing couples have the right to divide their property and debts without using a mediator. If they’re successful, the court typically doesn’t need to be involved. 

If a judge does become involved, there are two ways assets may be divided:

• In a community property state, each spouse can typically keep their separate property while community property is divided equally, and debts are usually divided similarly.

• In equitable distribution states, assets are fairly divided, which may or may not mean equally. Note that a judge may also give each spouse a percentage of a property, each getting assets and marital debts that equal the awarded percentage.

When deciding how to divide assets in a divorce, an attorney can provide personalized advice. 

Post-divorce finances: Who is responsible

Divorce finances can be complicated to untangle. As a rule of thumb, if your signature is on the loan papers, then you’re still responsible for the debt. This is true even if you and your former spouse agreed that you wouldn’t be the one making the payments. 

So, to truly get out from underneath marital debt, you may choose to pay off joint debt as quickly as possible and get your name off of joint loans. 

Here’s one more complication to consider with post-divorce finances. Let’s say that your spouse has a credit card and you weren’t a co-signer. It’s still possible that a judge would deem you responsible for its payments as part of your divorce proceeding. 

So, if you fail to follow through or fall behind on payments, the credit card company would go after the person on the application (your former spouse) but, because the judge determined that you’re responsible, your ex-spouse could have a basis to sue you. 

Paying off credit card debt

Divorce is already complicated; paying off marital debt as soon as possible, including credit card balances, makes it feel overwhelming. This may seem challenging, but there are ways to pay off debt fast, even with a lower income.

Budgeting

Create a manageable monthly budget that allows you to put more money towards paying off debt. This may involve canceling subscription services that are wants, not needs, packing your lunch for work, and so forth.

Debt avalanche method

Consider the debt avalanche method, where you put your extra money on debt with the highest interest rates (while still making minimum payments on all other debts). This can help you pay less interest on your debt, saving money over time.

Debt snowball method

With this strategy, you focus on paying off debt with the lowest balance while still making minimum payments on the rest. This helps to reduce the number of accounts with outstanding balances.

Debt consolidation

With this strategy, you take out a personal loan to pay off and combine multiple debts with high-interest rates into one account/payment. This loan usually has a lower interest rate, which is a plus. 

Balance transfer

Another strategy is to consolidate credit card debt through a balance transfer credit card, with an introductory 0% interest rate. This can allow you to pay off your debt faster, but verify how long the period without interest would last and the balance transfer fee to make sure it’s a good deal.

Pay off credit card debt for good with Tally

You don’t have to navigate divorce and debt alone. If you’re paying down credit card debt, consider Tally†. Tally is a ebt repayment tool that offers a lower-interest line of credit, which can help you pay down your credit card debt faster.  

​​†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.