Divorce is expensive.
Not only is there the cost of the attorneys and court-mandated marriage counseling which can run into the thousands of dollars, but there’s also the splitting of community debt and assets which is never as simple as it seems.
When I went through my divorce some 22 years ago, the dark financial side of divorce came as a complete surprise to me. Here they are:
You are jointly responsible for all community debt until it’s been paid off in full. In a community property state like mine, spouses are jointly responsible for all debt no matter how it’s been divided in a divorce.
The problem here is if the ex fails to pay his part of the divided debt, the creditors will demand payment from you instead.
When this happens, your only recourse is to pay the bills and then try to collect from your ex-spouse through a lawsuit.
The house may have to be sold. Just because you are awarded the house in a divorce decree, it doesn’t mean you’ll get to keep it.
Your ex-spouse can force the sale to collect his part of the equity or remove his name off the mortgage. The bank may also call the loan “due” and ask that it be refinanced which may be impossible in this economy.
There will be financial shenanigans. There’s nothing like a divorce that brings out the worst in people.
Liquid assets will quietly disappear while previously unknown IOUs (from your spouse’s relatives and friends) will filter to the surface to pad the community debt.
IRAs and retirement plans may be community assets.
If you’ve got a retirement plan, this too will have to be thrown on the pile of community assets to be divided in a divorce.
Your ex-spouse’s repayment patterns can impact your credit score. As long as there’s joint debt, how your ex-spouse pays off his portion of the debt will impact your credit score.
This can make it tough for the newly divorced to obtain credit or bank loans.
In retrospect, there were all sorts of things I could have done to protect both my assets and credit rating during the aftermath of the divorce while minimizing the community debt as well. What
I should have done follows:
- Closed all bank accounts and credit lines, and reopen new ones in my name only.
- Moved liquid funds out of the joint account and into my own separate account to pay off community debt and attorney fees.
- Paid off the credit cards with community funds and then cancel them to prevent new charges
- Reopened new credit cards in my name only. Getting divorced often takes a toll on a credit rating, which is why it makes financial sense to open new cards while your credit rating is good.
- Filed a legal separation to limit my liability on any new debt.
- Assumed all the community debt during the divorce and ask that the assets be adjusted accordingly.
The reality of divorce is that it’s both expensive and can impact your credit for several years. Anticipating these problems and taking the proper precautions will minimize the damage.