Divorce Debt Relief: How To Pay Off Debt When You Split
10 MIN READ
Published April 05, 2023 | Updated October 12, 2023
Divorce is expensive and stressful. There is the cost of hiring a divorce attorney and any associated fees. Your divorce may not turn out the way you wanted it, and getting divorced can add to the debt you already owe.
So, how is debt handled in a divorce? Splitting assets between married couples is a priority, but how you handle your debt during your divorce can have financial implications lasting years.
This guide explains everything you need to know about what happens to debt when you divorce and how to get out of it so you can move forward with your life.
What Happens to Debt When You Get Divorced?
The financial situation of every divorcing couple is unique. Several states in the U.S. have an equitable distribution where courts consider the couple's finances when dividing debt. Any debt that is incurred separately is the sole responsibility of the spouse that incurred it.
In these states, debts and assets are split with the ability to pay and fairness in mind. A spouse that has a higher income or more property may be assigned more debt.
In states that have community property laws, such as Arizona and Wisconsin, any debt that is incurred during the course of the marriage is divided equally according to state laws. There are other laws and restrictions that may make it more complex.
Here’s how different types of debts are handled during a divorce.
Credit Card Debt
In a majority of the states, if the credit card is in your name, you will be responsible for the debt. In states with community property, both parties will divide the debt equally because credit cards are considered community property in a marriage.
For joint cards and co-signed accounts, this is how debt is handled:
- In most cases, in a joint credit card account, both parties will be responsible for the debt. This is true regardless of who made the payments or used the card.
- When the credit card is jointly held, you can’t remove your name from the account. You’ll have to first pay off the balance or transfer the balance before you can close the card.
- Cosigned credit cards will be treated like any other debt in community property states, so they will be split equally. A judge will use their own discretion in common law states.
In community property states, any medical bills that are incurred during the marriage will be divided equally.
Another reason why medical debt may be equally divided is because of the “doctrine of necessaries,” which states that a person is responsible for any costs incurred for the wellbeing of their children and spouse.
Couples can negotiate the medical debt or have the court determine fair division based on other factors.
If your former spouse files for bankruptcy post-divorce, it can affect you. When your spouse files for bankruptcy, it will eliminate their liability for any joint debt you have.
The debt will not be erased, and you will still be responsible for joint credit if you haven’t filed for bankruptcy after the divorce.
If you are required to make alimony and child support payments as a part of a divorce decree, bankruptcy will not eliminate it.
What is Divorce Debt Relief?
Divorce debt relief offers you a number of strategies to deal with debt, such as divorce debt consolidation, settlement, debt counseling, debt management plans, and more. If you are planning for a divorce or are already divorced and dealing with these financial challenges, consider divorce debt relief.
Divorce brings with it many financial challenges for both parties. One household is split into two, requiring two mortgages or rent, utility bills for both homes, and other expenses. The expenses are doubled while the purchasing power of the single household is diminished.
When to Look For Divorce Debt Relief
You should seek divorce debt relief options at the earliest to avoid accumulating further debt and to avoid drastic measures like bankruptcy. This is particularly true if:
- You have incurred staggering attorney fees.
- You are struggling to be self-sufficient after divorce.
- You are finding it difficult to meet your financial obligations after separation.
- If you have inherited your spouse’s debt as a part of the divorce decree because you live in a common property state.
How Your Credit Score is Affected by Divorce Debt Relief
Getting divorced is a major decision that can have a lasting impact on many areas of your life, including your financial obligations. Divorce doesn’t lower your credit score directly, but it may have an impact because of the changes in your financial health.
Divorce may lead you to miss payments on your joint debt, you may close your joint credit cards, or you may be removed from your spouse’s credit cards as an authorized user. All of these events can negatively impact your credit score.
Seeking divorce debt resolution may sometimes impact your credit report, particularly if you opt for serious measures such as bankruptcy. On the other hand, seeking debt counseling and paying off your debt in a timely manner by enrolling in a debt management plan can help you improve your credit score.
Search for the Best Divorce Debt Relief Company
During a divorce, you are already dealing with a lot of stress and financial worry. Falling for a scam, or working with a company that isn’t well reviewed will only make things worse. The best way to avoid these troubles is to ensure that you only work with reputed debt relief companies with good ratings and reviews.
Avoid working with any company that demands up-front payments, makes bold claims of eliminating all of your debt, or offers you guaranteed results.
3 Proven Divorce Debt Relief Programs
Start with a clean slate after your divorce by taking care of your debt. These debt relief programs can help you.
1. Debt Settlement Programs
If you have overwhelming debt and no means to pay it all off, a debt settlement program can help you. Reach out to a debt settlement company so they can negotiate with your lenders to agree on a settlement amount. This will allow you to settle your debt for less than what you owe.
It is best to start this process early enough before your debt goes into collection. Another reason why debt settlement programs are helpful is that they can help you save up to 50% on your original debt before fees. You will also be able to pay off your debt faster.
A final thing to consider is that if you are looking to enroll credit card debt into a settlement program, but the debt is two parties names, both will be required to enroll. For example, if someone else is an authorized user on a credit card, both must enroll into a debt settlement program. This also applies when it comes to credit counseling and bankruptcy as well.
2. Debt Consolidation
If you are left with multiple unsecured debts after divorce, such as credit cards, personal loans, and medical bills, you may want to opt for divorce debt consolidation. With this program, you can consolidate all your debt into one loan for ease of repayment.
If you have fair credit, you may be able to qualify for a personal loan with a low APR. Another option is to apply for a 0% interest rate credit card.
If you opt for the 0% interest rate credit card, it is crucial to ensure that you pay off all your debt within the set timeframe to avoid incurring interest. Read the terms and conditions before you transfer your debt to the credit card.
3. Debt Management
With a debt management program, you will be able to get the help of a professional who can advocate and negotiate with your lenders on your behalf.
Debt management companies can enroll you in a suitable program with monthly payments that align with your budget. In many cases, they can also negotiate with your creditors to ask for lower interest rates or reduce penalties and fees.
Alternatives to Divorce Debt Relief Programs
If none of the options listed above are suitable for your current financial circumstances, there are alternatives available. Regardless of your situation, it is always possible to regain control of your finances.
Divorce Debt Counseling
If you have trouble managing your debt after divorce or are facing financial hardship, you want to consider credit counseling. There are many nonprofit and for-profit debt counseling companies that can help you explore all your options.
Sometimes the solution might just be to take a deeper look into your finances and work out a budget. A credit counselor can go through the details of your debt and your budget to help you figure out which debt relief program is the best for you.
In rare cases, when your debt is unsurmountable, and you have no resources to pay off debt, you may have to consider bankruptcy. This is a last resort that can help you eliminate your unsecured debts such as credit cards, personal loans, medical bills, and student loan debt.
You can file for Chapter 7 or Chapter 13 bankruptcy, based on your situation, and this may allow you to discharge most of your unsecured debts.
It is important to consider that bankruptcy is one of the most important financial decisions you will ever make. It will have a major impact on many areas of your life. It will also involve attorney fees and other fees that you will have to budget for if you consider this option.
The best way to avoid debt problems after your divorce is by paying off all your debt before your divorce proceedings. When that is not feasible, you may have to come to an agreement with your spouse to split your obligations in a fair manner.
Credit card companies and lenders are not parties to your divorce decree and only care about getting paid. Regardless of your divorce decree, if your name is on a credit card account or other debt, they will pursue you for getting paid. The best way to avoid any issues is by dissolving all your joint accounts before you decide to go to court.
TurboDebt can help you pay off your divorce debt faster so you can start over with a stress-free life after divorce. We offer counseling, consultation, and planning services to help ease the burden of debt. Our divorce debt relief plans can put you on the path to a debt-free life. Connect with us for a free consultation today.