How to Avoid More Debt During Divorce

Paying for a divorce could costs between $15,000 and $20,000 on average. What happens if you don't have that kind of cash on hand?

For the past four years, Debt.com has polled divorcees on how their breakup affected them financially. The latest survey reveals more than 3 in 10 (32%) report taking on $10,000 of debt or more. For nearly 1 in 5 (18%) the post-divorce debt added up to more than $15,000.

If you're considering – or currently in the process of filing for – divorce, these tips can help you avoid taking on more debt than necessary...

Create a budget

Your new budget should take into account expenses you didn’t have before such as attorney fees, court costs, real estate appraisal, and other divorce-related costs. At the same time, factor in your new income if that’s changed due to the impending divorce.

Unfortunately, if you want to avoid going into debt during a divorce, it’s time now to live more frugally. So, cut costs where you can, especially when it comes to non-essentials like dining out, new clothing and entertainment.

Shut down joint accounts

It’s smart to close joint credit card accounts before or during a divorce to prevent your spouse from incurring more debt under your name, according to major credit bureau Experian. Also keep in mind that in some states, even if a divorce decree assigns joint account debt to your spouse, if he or she doesn’t pay it, the credit card issuer can pursue payment from you.

Curtail credit card usage

Because divorce is so costly, it’s easy to run up a huge amount of credit card debt by charging groceries, gas, entertainment and other daily expenses because you handed over most of your paycheck to your lawyer.

Nobody wants to start a new life with thousands of dollars in credit card debt holding them back. If you know you can’t pay off the card’s monthly statement balance, ask yourself before you use a credit card if there’s another way to pay such as a savings withdrawal or budget adjustment.

Monitor your credit report

Always monitor your credit report regularly, but especially during and after a divorce. That’s because if you live in a state where your spouse is required to pay down a joint debt but he or she pays late, your credit will also be negatively affected. In many states, you could still be held responsible for the debt if the former spouse defaults.

You can obtain a free copy of your credit report at AnnualCreditReport.com. You can also get one free copy of your credit report annually from major credit bureaus Experian, TransUnion and Equifax.

Unfortunately, divorce often leads to a drop in your credit score. For some, it's simply the high costs of divorce causing you to use unsecured debts like credit cards to make up for the loss of your ex's income. For others, it's due to taking on sole responsibility for a once-shared debt. This year's Debt and Divorce survey finds nearly 4 in 10 (37%) saw their credit score drop more than 50 points as a result of their divorce.

Don’t pay divorce costs with a credit card

Credit cards are convenient to use but that convenience comes at a cost. The average credit card interest rate is around 23% right now. Unless you have no other option, avoid charging attorney’s fees and other divorce-related expenses to a credit card. Instead, when creating your budget, focus on areas where you can cut back on other expenses to allow more money to go towards paying legal and other divorce fees.

Get a DIY divorce

Divorce is a very emotional experience – and people often make poor decisions when emotions and money collide. Nearly 3 in 4 (74%) respondents to Debt.com's Debt and Divorce survey answered "no" when asked, "Did you consider separation instead of divorce as a way to save money and avoid the cost of divorce?"

There's no judgment toward those folks, but it's important to weigh your options. For example, a do-it-yourself divoce.

Not everyone is a good candidate for a DIY divorce. Ideally, if someone plans on pursuing a DIY divorce, the divorce should be uncontested with a simple marital estate containing “straightforward” assets and debts, according to Colorado Family Law Guide from Graham Law.

You probably shouldn’t travel the DIY divorce route if you have children, one spouse will need maintenance income or you live in separate states. However, a DIY divorce can save thousands of dollars if you fit the criteria.

You’ll have to be up for obtaining and completing necessary forms, researching the process and trekking to the county courthouse whenever necessary. Before you decide on a DIY divorce, consult an attorney who offers a free first consultation or visit your local state, city or county free legal clinic for information.

Choose your attorney carefully

Just because your coworker loved his divorce lawyer doesn’t mean that attorney is right for you. Individual situations differ, and so does cost, so choose your attorney wisely.

Research family law firms in your city and schedule consultations with potential attorneys so you can gauge their professionalism and experience. Make sure you understand the attorney’s hourly rates and billing practices and ask for a ballpark figure of how much he or she anticipates your divorce could cost.

Do as much of the legwork as you can

Want to cut down on billable attorney hours? Then gather whatever documents you can retrieve yourself instead of paying your attorney hundreds of dollars to run around town, stand in line and make phone calls that you can make instead.

Ask your lawyer which documents or papers you can bring to the office to save on billable hours. It all adds up. For example, if you can avoid paying for 10 hours at $250 an hour, that’s a $2,500 savings.

Consider “unbundled” services

To save money and avoid charging attorney’s fees on a credit card, consider unbundled legal services, also known as “limited scope” representation. With unbundled services, you pay for some services and advice from an attorney but handle much of the divorce proceedings yourself.

For example, you may pay for a few hours of advice from an attorney but handle most parts of the divorce proceedings yourself.

Going the unbundled route can save on attorney’s fees or a large retainer. Unbundled packages or services vary among law firms, so don’t assume that one firm’s unbundled offerings are the same as those at another.

Don’t pay to whine

Yes, you’re hurting and need someone to talk to. Unless you’re paying a therapist, however, choose a confidante that doesn’t charge by the hour. If your divorce attorney is willing to watch a dramatic reenactment of your husband’s rage or listen to the saga of your wife’s affair, you’ll be billed for it later.

Know what’s cheaper? Go to dinner with a friend. Call your sister. Adopt a rescue dog so you can replace bitterness with unconditional love and plan the future during long walks. Complaining to your attorney is expensive and takes up time they can spend getting you divorced.

Consider mediation

If you and your spouse attend mediation facilitated by a neutral third party, you may be able to expedite the divorce process and save money by not going to trial.

“In short, mediation in divorce is easier,” according to Goldberg Jones Divorce for Men. “At least if you and your spouse can act civil, play nice, and cooperate. The process is often much cheaper and faster than a long, drawn-out trial. It’s also much less stressful.”

Try to avoid litigation

You may be able to save thousands of dollars if you and your spouse come to a settlement on divorce terms without going to trial, since your attorney won’t need to spend billable hours on trial preparation.

“While it’s sometimes necessary to carry a divorce through a tiring trial, expenses will mount,” according to Buffalo Attorneys Legal Blog. “The assets you wrangled over might not weigh very much against the fees for attorneys, paralegals, expert witnesses, accountants, and mental health professionals that could be drawn into your trial.”