It’s no surprise that thinking you have too much debt to divorce can add fuel to the fire – adding extra challenges to an already difficult situation. After years of marriage, many financial details need to be managed to create a clean separation financially. Not only are the assets divided, but it’s also important to consider how the debts will be split.
One common myth is that you can have too much debt to divorce. Yes, you need to be proactive in protecting your finances during this time. But there are always solutions to handle the debt so you can end the marriage as needed.
Bankruptcy or Debt Consolidation Prior to Divorce
Consider a few options for financial management if you think you have too much debt to divorce:
- Debt Consolidation: Sometimes, balance transfers can be used to move the debt from a shared account to the responsibility of an individual. For example, debt consolidation offers an effective solution in certain circumstances. This process frees up the balances on the shared accounts, moving the balances to one simple payment.
- Bankruptcy Before Divorce: Large debt balances on shared accounts can become impossible to pay after divorce. If both names are on the account, you might consider filing for bankruptcy together before filing for divorce. This strategy might be used to reduce the joint debt responsibility after the divorce is finalized.
Should Debt Be Paid Off Before Divorce?
In an ideal world, it creates a clean separation when debt is paid off before divorce. But don’t assume that you have too much debt to divorce and that you need to wait to end the marriage. If a limited amount of money is available for debt payoff, then it’s best to use those funds on shared accounts.
Also, consider how your financial situation will be impacted by divorce. Moving from two incomes to a one-income household can be a financial challenge, especially when you are taking on new debt for legal fees. When there is too much divorce debt, there are times when the only solution is to finalize the divorce first – then manage a debt settlement or paydown plan after the dust settles.
Financial Protection After Divorce
Just because your marriage has come to an end, doesn’t mean that you no longer have financial ties with your ex-spouse. Your credit can still be affected if payments are missed on any shared loans or credit card accounts. The loan agreement or credit card terms always supersede the divorce decree.
The smartest strategy is to remove your name from those accounts or use a balance transfer strategy so that your financial history is no longer affected by your ex-spouse. With a bit of strategy and a proactive approach, you’ll never have too much debt to divorce.