Divorce & Debt: 4 Tips to Avoid Being Saddled with your Ex’s Debt

Submitted by Certified Credit Counsellor Suzanne Cramer.

We all wish divorce was as painful as pulling off a Band-Aid, but the reality is that it takes a toll on you – it is both emotionally and financially draining.

Whether you are planning on getting a divorce, are going through one right now, or are living with debts from a previous divorce, there are several ways to avoid having to take on your ex’s debt.After all, did you want the $3,000.00 golf clubs or diamond tennis bracelet? Should you be responsible for paying for them? Let’s take a look:

1.  Dissolve joint accounts.  Did you and your ex happily shop side by side? Your weekend strolls together through the mall, Best Buy, and home improvement stores may have resulted in opening up various credit cards (you know, for the discount), leaving you vulnerable. If divorce is in your face or in the future, this is a step you must take ASAP.

Go through all of your credit cards, including those for different stores, furniture, and electronics– don’t miss a single one. Now see which accounts are in your name, your ex’s name, or both. Are you an authorized user on these accounts? Unlike users of a joint account, authorized users are not legally responsible for payment.

You may find there are accounts without a balance, or ones you haven’t used since you opened them. Make sure you determine if you co-signed for the accounts, even though your ex may have been the one to open them. Should your ex be unable to make the payments, the liability usually falls on their spouse (yes, you) to pay off the debt. Your goal is to uncover all of these cards and take care of dissolving them to avoid future trouble.

2.  Consider hardship plans as a possibility.  After thorough review of your finances you may find there is large debt load you are still responsible for. While the debt was manageable with your joint finances, you may find it overwhelming on your own.

The best thing to do is attempt to communicate this with your creditors, explaining your situation. Some creditors may have hardship plans available. A hardship plan may allow you to pay back the debt on a revised payment plan, including interest-only payments for 3 to 6 months, based on the nature of the hardship.

It is important to understand that while you may only be paying the accruing interest; your principal balance remains intact and is still owed.

3.  Tackle unsecured debt and its haunting effects.  If you found yourself a co-signer on any of the accounts, you agreed to a legal obligation; even if the charges were not made by you, you are still responsible. When you venture to the bargaining table or divorce court, your debts will most likely be divided and obligation given to either you or your ex. It is important to note some creditors may refuse a request to dissolve a credit card account because they prefer to have “double liability” to increase the chances of having everything paid. While seemingly unfair, be prepared to pay up, as the responsibility of the debt may fall back on you. 

The best way to tackle the debt is to pay it off in full, as soon as possible. If this isn’t an option for you, at least try to pay more than the monthly minimum to avoid more interest and fees.

While many people seek bankruptcy after a divorce, it should be used only as a last resort. The effects of bankruptcy are far-reaching; it negatively affects your credit rating and your ability to apply for loans, such as a mortgage. Bankruptcy is also costly and doesn’t wipe out all debts, such as recent tax liabilities and government-funded student loans.

If your debt turns out to be primarily unsecured debt, credit cards, medical bills, or unsecured loans, there may be other options available besides bankruptcy.

You may consider a Debt Management Plan (DMP) to help you pay off debts. With a DMP, your debts are paid back in full, typically over a 3-5 year time frame.

Sometimes a DMP is unaffordable and you may consider a Debt Settlement Plan (DSP). A DSP usually offers a lower monthly payment than a DMP and works towards negotiating with a creditor to accept a lesser amount than what is owed, as opposed to only lowering interest rates.

4.  Perform due diligence with your credit report.  Six months to a year after the dissolution of the accounts, it is important to follow up by obtaining a copy of your credit report to ensure everything has been taken care of and is being reported correctly. Any errors you find should be handled immediately, to avoid future hassles when applying for loans or other credit.

Taking these steps can distance you from your ex’s debt, giving you a fresh start and the chance to become financially independent.

Suzanne  Cramer is a certified credit counselor working in CareOne’s Ask the Expert forums as a coach and a Social Media Specialist for CareOne. Suzanne writes for Divorce, Debt and Finances and A Straight Talk on Debt blogs. Ask her questions, share your story or just follow Suzanne on her journey as she navigates dealing with divorce, debt, and finances. Suzanne is also very active on Twitter and manages two CareOne accounts: ADivorcedMom and Ask CareOne where she shares the latest debt industry news and tips to keep your finances in check.