Take these proactive steps to keep new debt from cramping your post-divorce style.
Facing Divorce From COVID-19? Here are 7 Ways to Avoid Debt
The COVID-19 pandemic has caused divorce rates to spike, especially among newlyweds and families with small children, according to a recent survey conducted by Myexbackcoach.com, a site offering advice on ways to “get an ex back.” But what if you don’t want your soon-to-be-ex back?
If that’s the case, it could be time to file for divorce, pandemic or not. Divorces are expensive, however. Paying for a divorce could cost thousands of dollars, with the average cost of divorce in the U.S. running around $15,000, and a divorce that goes to trial costs as much as $20,000 on average, according to personal finance site TheStreet.
Around 40% of respondents took on more than $5,000 in debt right after their divorce, according to a survey by Debt.com and Moneywise.com. Nearly half took on sole responsibility for a shared debt after the divorce.
Click or swipe to learn 9 ways to avoid adding debt during a divorce.
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1. Create a budget
Your divorce 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.
2. Get a DIY divorce
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.
3. Don’t pay divorce costs with a credit card
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.
4. 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.
5. Shut down joint accounts
It’s smart to close joint credit card accounts prior to 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.
6. 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.
7. 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.
Published by Debt.com, LLC