This week on Fox 59, Ray Cortopassi and I talked about the financial implications of divorce. I don’t love talking about this subject, but it is important for me to cover all aspects of your financial life. I want you to be prepared for the worst case scenario. Watch below to hear my tips for dealing with money in a divorce.
Money is the most common reason people get divorced, and unfortunately money problems don’t end just because the relationship does. There are a few ways divorce can really mess with your finances. The first is the most obvious, you start as one household and end up as two households. Where this gets tricky is income. Income is rarely exactly equal between two working spouses, and the income discrepancy is even more pronounced if one person doesn’t have a job outside of the home. In your previous household you split your shared income, but after the divorce you are back to what you make on your own (if you have an income at all). Adjusting to a new income is hard under normal circumstances, not to mention during the emotional trauma of a divorce.
This leads to another big issue in divorce, the house. I’ve warned you before about keeping the house, but it bears repeating. Keeping the house in the divorce may be the best thing for the kids emotionally, but financially it is almost always a bad idea. Just think about it, you purchased the house with two incomes, and now want to keep it on one income. It won’t work out. But if you don’t take my advice, at least make sure you properly refinance so the house is in your name, and your former partner is removed from the mortgage.
Debt shrapnel is another adverse side-effect of divorce. Who keeps the debt after you split? It depends on a few factors, but what you need to know is if you are a co-borrower or an authorized user. If you are a co-borrower any debts incurred during the marriage will show up on both of your credit reports. If you are an authorized user then the debt will only show up on the other person’s credit report.
If you let the house go, split the debt fairly, and adjust to your new income, you can avoid some of the major financial traumas in a divorce. A divorce can be a financial fresh start, but you’ll have to make smart decisions under a lot of pressure.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.