Things You Need to Know About Divorce Debt
Divorce is often traumatic for everyone involved. But beyond the emotional aspects, the end of a marriage can also result in what’s called divorce debt. This can affect how much money you leave the marriage with and if you can afford to set up a new household.
What contributes to divorce debt?
A host of factors can lead to divorce debt, including the following:
Household Income Changes
Depending on your financial situation, divorce can affect your lifestyle as a newly single person. Your two-income household becomes two separate single-income households.
On the other hand, the bills are also reduced by about half. But if you’re earning less than your spouse, you might find it difficult to make ends meet. That’s when debt might enter the picture.
About Divorce Debt: Sharing Marriage Debt
In addition to assets, your debts are usually divided in divorce court. This means both you and your spouse are responsible for some of the outstanding debts. How much you will owe hinges on your state’s divorce law and how the assets are distributed. For instance, the spouse who gets most of the property in divorce might be liable for more debt to offset the difference. Since prenuptial agreements can impact the divorce settlement, one of you may wind up having more debt than before you got married.
Asset Title Changes
How the assets are divided can also result in substantial divorce debt. Let’s say only your spouse’s name is on the car title, and the loan isn’t fully paid off. But you have been driving the car and want to keep it.
The car loan might require refinancing to pay it off and change title ownership. Depending on your credit score, the new loan rate and payments could be higher than they originally were. If you’re fortunate and you have a good credit score, you’ll pay less!
Legal Expenses
Most divorces incur attorney’s fees and other legal expenses, particularly when there are assets and children involved. It’s not unusual for each party to accumulate thousands of dollars in legal costs, which can be compounded if the divorce becomes contentious. Each party is usually responsible for its own legal costs. But in some circumstances, one person can be directed by the courts to cover the other’s expenses.
Other Experts and Advisors
In some situations, hiring a divorce lawyer is just the beginning. Experts and specialists such as property appraisers, tax advisors, child custody evaluators, mediators, and other professionals might be needed. If your divorce ends up in court, costs may go up substantially because experts might be needed to provide documentation or testify.
Court costs can add up quickly, especially when a lawyer could charge as much as $500 per hour. After paying everyone, your savings could dwindle down to practically nothing.
Child Support
If there are children involved, the divorce agreement must address their care and custody, including the amount of child support. Such provisions can contribute to debt woes, particularly when the person paying support is trying to establish a one-income household.
The person who receives spousal or child support can incur financial problems if payments are spotty, and the other party isn’t handling the divorce and debts responsibly.
