Financial consideration when facing divorce

There is evidence that couples' financial problems are linked to increased levels of stress, conflict, and marital duress as well as decreased levels of marital satisfaction. Furthermore, money problems are frequently cited as a major reason for divorce. Ironically, the financial problems that result from divorce may be even more severe. While it may be hard for people involved in an emotionally draining divorce to clearly think about their money, it is absolutely imperative. One of the most pressing concerns of newly divorced people is determining who is responsible for the repayment of debt.

Review your debts

The first financial action after separation is to pull a copy of your credit reports. You will want to review entries carefully and either close all joint-accounts or change them to individual accounts. Alert your secured lenders of your marital status and instruct them not to allow any changes without your permission. You may also want to “freeze” joint bank accounts or divide any funds into two individual bank accounts.

Prepare a settlement agreement

As preparation for divorce, you and your spouse need to reach a settlement to present to the court. This settlement agreement outlines how your debts and assets will be divided; it also includes plans for spousal and child support. If the judge approves the settlement agreement, he or she issues a divorce decree. If no settlement can be reached, then the judge will issue a divorce decree at trial.

Develop a repayment plan

To avoid future money problems, it makes sense to develop a plan to pay off your debts prior to your divorce. Remember, your divorce decree is an agreement between you and your spouse (not your creditors) on how your debts and assets will be divided. The contracts you signed with your creditors cannot be changed by the divorce decree. Whoever signed the original contract with the creditor will still be obligated to pay the debt after the divorce. That means you are still obligated on these debts and the creditors can report the derogatory status of these accounts on your credit bureau file.

As protection, your divorce agreement can include a clause stating that if the assigned debts are not repaid, you would be entitled to indemnification. After the fact, your only recourse may be to file contempt of court charges for failure to abide by the terms of the divorce decree. Keep in mind that still would not relieve you of your obligation on the debts.

Because divorce can be a very complex process, consider hiring a trusted financial advisor for help; be certain to ask about your advisor’s experience with divorce situations. 

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.