How Do I Handle Debt Before Divorce?

Divorce takes an emotional toll on couples. However, it also takes a financial toll, according to Terry Savage. Handling debt before a divorce can seem complicated, even when both parties are ready to go their separate ways. Taking inventory of debt and creating a plan for managing it will help avoid future problems and credit issues.

Instructions

1

Take inventory of debt. This includes mortgages, credit cards, auto loans and any home equity loans. Having these numbers in front of you will make it easier to create a plan of action.

2

Try to pay off debt. If possible, joint debts should be paid off in full before divorce. If the couple is strapped for cash, consider liquidating assets (extra furniture, vehicles or other items) to pay off the debt. Pulling money from a joint savings account, if you have one, to pay off debt is also a viable option.

3

Transfer debt to individual credit cards. When it is unrealistic to pay off all debt, each individual should transfer their portion of the debt to a new credit card (which is only in their name). This will eliminate joint debt, and make each party financially responsible for their portion.

4

Sell larger assets. If the couple owns a house or other large asset together, they may want to consider selling it. This can help with distributing mutual funds (and provide resources to payoff existing debt).

5

Refinance assets. If one person wants to keep a specific asset (such as a vehicle), she needs to refinance the asset into her name alone. Lenders will not remove a person from a loan.