A woman reviewing her finances after getting divorced.
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Divorce can be a challenging and emotional experience. Not only that, the financial implications can linger long after the paperwork is finalized. For many, tackling debt after a divorce is a top priority. Whether it's dividing credit card balances, car loans or mortgage debt, knowing how to manage the debt you're left with can help you regain financial stability. With careful planning and proactive steps, you can tackle post-divorce debt and build a secure financial future.
A financial advisor can help you make a plan to get out of debt once your divorce is finalized.
How Debt Is Divided During a Divorce
One of the most important financial aspects of divorce is the division of debt between spouses. This process depends largely on the type of debt involved and the laws of the state where the divorce is filed.
Courts typically categorize debt as either marital or separate, depending on when and why it was incurred. Marital debt, which typically includes obligations taken on jointly during the marriage, is generally divided between both parties. Separate debt, on the other hand, is usually the responsibility of the spouse who incurred it.
Keep in mind that even if a court assigns responsibility for certain debts to one spouse, creditors can still pursue both individuals if the debt was jointly held.
Community Property vs. Common Law States
Whether you file for divorce in a community property or common law state also affects the division of debt in a divorce.
In community property states, debt incurred during the marriage is typically considered joint debt, regardless of whose name is on the account. This means both spouses are equally responsible for repayment. For example, if one spouse racks up credit card debt during the marriage, both spouses may be held liable, even if only one benefited from the purchases. The nine states that follow community property law are:
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
Common law states follow a different set of rules. In these states, debt usually belongs to the person whose name is on the account. However, debt taken out by both spouses, such as a co-signed loan, is a shared responsibility.
Because laws can differ by state, a qualified attorney with local expertise can be a valuable resource during the divorce process.
Types of Debt
Debt division can also depend on the type of debt in question. For example, the following types of debt are handled in different ways:
Mortgage debt: If a couple owns a home together, they must decide whether to sell the property and split the proceeds or refinance the mortgage under one person's name. Until the mortgage is refinanced, both parties are liable.
Car loans: The spouse who keeps the vehicle typically takes responsibility for the loan. But until the loan is refinanced, both names may remain on the account.
Credit card debt: Joint credit card debt is often split between spouses, but individual accounts are typically the responsibility of the account holder. Consolidating or transferring balances can simplify repayment.
How to Get Out of Debt After Divorce
A woman researching strategies to get out of debt after a divorce.
After a divorce, rebuilding your financial foundation requires a clear plan. Tackling debt head-on is one of the most effective ways to regain stability and set yourself up for long-term success. Here are six general steps to help you eliminate post-divorce debt and create a fresh start.
Close Joint Accounts
One of the first steps after divorce is to close all joint accounts shared with your ex-spouse. Leaving joint accounts open can lead to unintended consequences, such as being held responsible for new charges or missed payments. Work with your creditors to either close shared accounts or transfer them to individual accounts, and confirm these changes in writing.
Review Your Credit Report
Request a copy of your credit report to get a clear picture of your financial situation. Look for any joint debt errors or unfamiliar accounts that may need attention. Regularly monitoring your credit report can help you identify and address issues early, preventing long-term damage to your credit score. Use a website such as AnnualCreditReport.com to get free copies of your credit report.
Negotiate Debt with Creditors
If you're struggling to manage debt, consider negotiating directly with creditors. Many creditors are willing to work out repayment plans, lower interest rates or debt settlements for less than the total amount owed. Be transparent about your situation and provide documentation if necessary. These conversations can help you create manageable repayment terms that align with your post-divorce budget.
Create a New Budget
Creating a budget tailored to your new financial reality is essential for getting out of debt. Start by listing your income and expenses, prioritizing necessities like housing, utilities and food. Allocate a portion of your budget to debt repayment, focusing on high-interest debts first. Tracking your spending will help you identify areas where you can cut costs and accelerate your debt payoff.
Consider Debt Consolidation or Refinancing
Debt consolidation or refinancing can simplify your financial obligations by combining multiple debts into a single payment with a lower interest rate. This approach is particularly useful for credit card debt or high-interest loans. Options include balance transfer credit cards, personal loans or working with a debt consolidation company. Make sure the terms align with your financial goals, and avoid taking on more debt during this process.
Work With a Professional
If managing post-divorce debt feels overwhelming, consult a financial advisor or credit counselor. These professionals can help you create a debt repayment strategy, negotiate with creditors, and rebuild your financial stability. Many nonprofit organizations also offer free or low-cost credit counseling services to help you navigate this challenging time.
Bottom Line
A woman reviewing her financial plan after a divorce.
Getting out of debt after a divorce may feel daunting, but it can be achievable with the right approach. By understanding how debt is divided, closing joint accounts and using actionable strategies like budgeting and debt consolidation, you can take control of your finances and work toward a brighter future. Rebuilding your financial stability takes time and persistence, but each step you take brings you closer to a debt-free life.
Financial Planning Tips
A financial advisor can help you manage debt after divorce by creating a budget, prioritizing payments and developing a repayment strategy. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
If you want to build your savings up consistently, consider setting up automatic transfers from your checking to your savings accounts. This approach could help you make saving a routine part of your financial life.
