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6 Ways To Avoid Going Into Debt After a Divorce Thumbnail

6 Ways To Avoid Going Into Debt After a Divorce

Investment Planning Divorce Planning

In many divorces, money is a primary cause of the divorce.  This is supported by numerous studies conducted by a range of people.  Whether it’s from Dave Ramsey or academia, it’s pretty clear that many divorces happen because of fights over money. 

Even when the marriage ends for some reason other than money, studies have shown that there are differences in how the post-divorce household (now divided into two separate households) recover.  According to a study conducted by the National Institutes of Health, women are more likely to experience a permanent change in life quality, while men are more likely to experience temporary setbacks. 

A major contributor to this is the amount of debt that either exists before the divorce, or accumulates after the divorce.  The latter is particularly true for people who have been out of the workforce for a while and who might need to finance even basic living expenses while getting back on their feet.   

If this is true, here are 6 things you can do during your divorce, to minimize that amount of debt you get into after the divorce. 

  1. Understand your current financial situation. 

There is no way around this.  Either you can learn about your finances now, or you’re going to have to learn about them later.   Now is preferable, before the divorce is finalized. 

If you’re not the primary breadwinner, or if your share of the spousal responsibilities has not included handling the finances, then you need to learn.  Learning about your financial situation before the divorce is final is the only way that you can learn about what options are available to your after the divorce. 

  1. Educate yourself on your post-divorce options. 

Do we keep the house or not?  Do we pay all the credit cards before we part ways, or agree to jointly share the debt?  What debts should we pay off? 

These are all questions that many people ponder as they figure out what their options are.  As you go through this process, just remember that each divorce is different.  What has worked for others might not work for you.  And when it comes to your post-divorce life, keep in mind that you might have to think outside your current box to find the outcome that will work.  Here are a couple of pointers: 

  • No sacred cows.  In other words, assume that when it comes to your finances, nothing is off the table.  Nothing.   

  • Everything’s negotiable.  If nothing is off the table, then everything is negotiable.   

  • In the short-term, cash is king.  Regardless of who gets whata post-divorce couple’s assets will have to support twice as many households.  If you’re the one moving out of the house (or if both of you end up doing so), you’re going to have to have cash.  For utilities.  For rent.  For car payments.  For groceries.  And the list goes on.  And if you keep the house?  You’re going to need cash.  For mortgage payments.  For utilities.  For insurance.  For groceries.  Et cetera.  However, your house doesn’t generate cash for you (home equity lines don’t count). 

  • In the long-term, investment growth and tax planning reign.  When splitting retirement accounts, tax status matters.  When divvying up company stock, tax basis matters.  In most cases, the securities that you receive in your divorce will probably help fund some part of your future financial life.  While a good financial advisor can help you rebalance your investment portfolio, you could end up being shorted thousands of dollars if you’re not watchful about the tax treatment of your holdings.  With that in mind, you’re much better off if you take the time to ensure that you didn’t get the short end of the tax stick while protecting your investments. 

  1. Financially plan for your post-divorce life. 

This is a step you should never miss.  After all, most divorces require this kind of paperwork to begin with, in the form of your financial affidavit.  Your financial affidavit, which lists each spouse’s net worth, liabilities, income, and expenses, is the perfect starting point because this document is going to be the reference point for your negotiations. 

Sometimes, contested divorces often become a game, whereby one spouse inflates their expenses in the hopes of negotiating a number closer to their actual or projected expense.  Let’s hope that this is not the case in your situation, but that these are real numbers.  If that’s the case, then there’s your roadmap for the next 1-2 years of post-divorce life.   

And if you did get a chance to put a little cushion into your expenses, don’t fritter it away on the trivial.  Until you are certain otherwise, every dollar of income has a purpose.  Every additional dollar can be put away for later use.  But you have to take the time to actually plan for it.  Especially if there’s not enough money to go around—which is usually the case. 

  1. Figure out if your plan needs improvement.  

If, after the affidavits are done, and the equitable distribution worksheet has been completed, it appears that everyone is okay, then great!   

But that’s not usually the case.  Setting aside personal gripes (such as one spouse perceiving that the other spouse is getting more than their ‘fair share’), for one of a few reasons: 

  • There’s not enough income to go around.   

  • There aren’t enough assets to go around. 

  • There’s not enough liquidity. 

There are a couple of ways to work through this: 

  • Increase income. 

  • Cut costs. 

  • Live off assets (or the income generated by selling assets) until one of the two previous options becomes more viable. 

But this is where the pencil and paper come out.  You need to check, then re-check your numbers.  Not just for the next year.  But where will you be in 5 years?  20 years?  Decisions that you make today might very well impact your livelihood when you’re in your ‘golden years.’     

Sometimes, for younger people, it’s as easy as moving in with friends and family until you get back on your feet.  If you have children, or if you have been out of the workforce for a while, it might not be so simple.  If that’s the case, then you’ll have to look at what you might have to let go of. 

  1. Figure out what doesn’t belong in your plan. 

If you’ve been able to do everything else, this should be the simplest part of the entire process.  Ironically, it’s usually the hardest part. 

Letting go of things that you’ve acquired during a marriage can bring a wide range of emotions.  But this is where the wrong decision could set you up for failure.  For example, holding onto a house that you cannot afford could financially set you back, while selling that same house might give you enough money to move on with your life. 

Certainly, it’s not always as clear as that.  And even when we make the ‘right’ decision, we might not know it until well after the fact.  That’s why you need a support system in place. 

  1. Surround yourself with people who can help you—on your terms. 

At the risk of sounding cliché, this wording was intentional, because this will mean different things to different people.  Or it might mean different things to the same person over time.  And perhaps it’s not just friends and family—you might need to hire a professional to help you with something no one else can. 

For example, you might need to hire someone to help you go over your finances before you finalize your divorce.  Or you might need to hire a licensed counselor to help you or your children through the emotional challenges that lie ahead.  

Sometimes, it’s different people you lean on for different things.  The person who lends you their ear, or gives you a shoulder to cry on might not be the same person who will give you that jolt of reality we all need from time to time.   

Or perhaps, you just don’t need help.  You just need to get through this and move on.  If that’s the case, you need to make sure that you’re not just avoiding something that is going to hit you down the road.  That’s not good either for several reasons.   

  • Avoidance doesn’t usually last.  And when you can’t avoid something any longer, it’s that much more impactful. 

  • Avoidance can manifest itself in self-destructive behaviors.  For example, ‘treating yourself’ to an indulgence that you rarely afforded yourself while you were married could be a one-time thing.  And it can help you get through some obstacles.  But when that ‘indulgence’ becomes a new expensive habit, that only compounds the problem.  

  • Avoidance can leave you susceptible to people who might take advantage of you.  Rebound relationships might work out.  Most don’t.  And horror stories abound.  It’s not just rebound relationships—it’s new friends (or old friends you recently hooked up with), people associated with ‘new habits’ or ‘lifestyle changes.’  These new people don’t know the real you.  And if you’re spending money that you don’t have to impress people you don’t really know—don’t expect them to stick around when the well’s dry. 

Find the true people—those who have proven themselves to you in the past, and seek the help you need from them.  And for those specific issues, like financial planning or counseling—hire a professional if you need to. 


Divorce is a financially challenging process.  After all, you’re taking one household and splitting it into two.  Hopefully, you’re able to settle on terms that financially set you up for post-divorce life.  Ultimately, it is up to you to take a hard look at your life to determine what steps to take so you can avoid, or at least mitigate, the amount of debt that you take on during your transition. 

However, getting a handle on ALL of your financial decisions can be quite overwhelming.  If you are not confident that you can do this on your own, we can help.  To learn more, simply contact us. 

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