Divorce is not only a heartbreaking situation for everyone involved, but it can also be a financial challenge as each person deals with all that accompanies the end of a marriage including divorce debt. There are a variety of factors that can contribute to divorce debt, most of which are unavoidable. These costs can make it difficult to recover, and may even make you wonder if you have too much debt to divorce.
Debt from Changes in Household Income
Divorce changes a household’s income in different ways, depending on the financial situation of each family. Usually, a two-income household moves to two, single-income households. As a result, both parties must downsize to ensure that they can pay the bills without the financial support of the spouse and avoid divorce debt. Through these adjustments, even common living expenses might result in an accumulation of debt because the individuals are not able to keep up on their own.
Splitting Marriage Debt
You probably know that assets are split in a divorce but you may be wondering who is responsible for debt after divorce. Not only are assets divided in divorce proceedings, but debts are as well. In most cases, the court divides both assets and debts equally, which means that each spouse will take on the responsibility of debt balances that need to be paid. The exact amount of debt varies, depending on the assets that are distributed. For example, if one spouse receives more property, then they might also take on more debt to balance the overall asset division. The divorce laws vary by state, so unique circumstances might change how the divorce debt is assigned by the family court. Additionally, prenuptial agreements also affect the settlement. This means that someone could leave a marriage with more debt than they started with.
Asset Title Changes After Divorce
The division of assets can be another unexpected marital debt after seperation. For example, if the spouse’s name is on a car, then the car loan might need to be refinanced to pay off the original loan and change the ownership on the vehicle title. The financing rates might change depending on the credit score of the spouse, which could result in a higher interest rate and bigger monthly payments compared to the original auto loan.
Debt from Legal Expenses
Divorce debt is easy to accumulate, especially when you consider the attorney fees and legal expenses accrued by both parties. When a married couple owns assets and needs to work through custody details, it is often necessary to obtain formal legal services to work through the logistics. It is common for each spouse to accrue thousands of dollars in legal expenses, especially when there are disputes regarding the way the divorce should be settled. In most circumstances, each spouse is responsible for their own legal fees. Although there are times when one person is required to cover the other spouse’s legal expenses, this is not common and you should expect to have to cover your own legal costs.
Other Divorce Experts
In addition to hiring a divorce attorney, there are times when other outside experts need to be hired: tax advisors, real estate appraisers, mediators, child custody evaluators, and more. These costs increase even more if a trial is necessary since the experts might need to provide documentation or testimony to assist in the court settlement processes. In addition, there are often court costs that need to be covered. Very quickly, these costs add onto existing divorce debts and can eat away at any savings the couple may have had.
Payment of Child Support After Divorce
When children are involved, divorce agreements will determine the custody and care of the children, including the amount of child support that needs to be paid each month. The cost of providing for a child, even with some support, can add to debt problems, especially when an individual is trying to establish a new household and keep up with other costs. On the other hand, the person paying the child support has an additional payment added to their costs, which can quickly build up divorce debt when moving to a one income household.
Debt From Inconsistent Support Payments
As the recipient of spousal support or child support, financial problems can occur if the payments are inconsistent and your former spouse doesn’t handle their divorce and debt responsibility. Even though the other party is responsible for monthly financial support, these payments might be inconsistent if the person isn’t able to keep up with their own expenses. As a result, it causes a domino effect that could cause the recipient to accumulate debt. Living expenses need to be paid regardless of the timing of spousal support, and the recipient might not have a strong enough income to cover the costs when a support payment is delayed.
Career Changes Causing Debt
Divorce not only affects a person’s marital status, but there are often times when individuals need to make changes in their careers to accommodate the new lifestyle. For example, if one spouse was a stay-at-home parent, then they will likely need to step into a career again since they are no longer provided income through their spouse. Changes in careers can have an impact on income levels, which also affects a person’s lifestyle and living costs. The spouse with a limited career history often faces debt challenges because their earning power is limited based on their lack of experience in the workforce. Stepping into an entry-level job in adulthood can result in underemployment, which plays a significant role in the accumulation of debt.
Setting Up a New Household After Divorce
Moving from one household to two households increases the cost of living significantly. The spouse who moves out of the family home not only needs to take on a new rent or mortgage payment, but debt can also add up for furniture and other basic household needs: dishes, bedding, towels, TV, stocking the pantry, and more. Even though the physical assets are divided, there are always costs for both spouses as furniture and other household goods need to be replaced.
Moving Costs After Divorce
Both spouses will likely incur moving costs, depending on how the assets are divided. If the couple owns a home in a divorce, then one person might stay in the house with the other spouse accruing the moving costs. In some situations, it is determined that the real estate should be sold, causing both spouses to take on divorce debt in the form of costs for moving trucks, moving labor, deposit and first-month rent, and more.
Divorce isn't cheap, and many people accumulate debt as they complete one. However, you are not alone. If you have divorce debt from the end of a marriage, then right now is a great time to learn more about your options, such as a debt consolidation loan or other financial programs that can help you pay off what you owe and achieve true financial independence.