The Price of Divorce

Getting a divorce is emotionally taxing. The end of a marriage is not a happy occasion in itself, and dividing property and deciding who will have custody of the kids can be a long and excruciating process. And when it comes to financial matters, divorce usually has a serious impact on both parties.

When you're married, everything you or your spouse acquires belongs jointly to both of you. This includes real estate, automobiles, household items, income, money and pretty much everything else. There are a few exceptions, but these are rare.

When a couple divorces, the assets acquired during the marriage must be divided. How they are divided depends on where you live. Some states extend the concept of each spouse owning an equal share in everything to the division of assets in divorce. These so-called "community property" states divide everything equally, without regard to each party's situation. But most states take an equitable distribution approach, which takes into account factors such as each party's earning capacity, how much property each brought into the marriage, tax consequences and the need for a home for the custodial parent.

The aspect of divorce that tends to have the greatest financial impact is the division of marital debts. If the parties cannot agree on how the debts should be divided, the court may divide them on an equitable basis, similar to the equitable division of assets. Debts acquired during the marriage may be divided regardless of whose name is on the debt.

Although the court may assign joint debts to one party, the other party is still responsible for them in the eyes for creditors. That means that if your spouse is assigned a joint debt but doesn't pay it, creditors can take legal action against you. There are legal remedies for this, but such a situation can have a devastating impact on your credit rating.

After a divorce, bankruptcy also becomes more complicated. Generally, debts that are assigned by a divorce decree cannot be discharged through bankruptcy. This is intended to protect the other party from being held responsible for the debt. But if you find yourself in a position of needing to file for bankruptcy, you may be out of luck.

Although spouses are jointly responsible for debts acquired during marriage regardless of whose name is on them, if you haven't had any credit in your name, it will be difficult to establish it after a divorce. If your name has not been on any accounts, it's just like you have never had any credit in the eyes of potential creditors. You may have to start over from scratch, getting co-signers and paying higher interest until you establish a good credit record of your own.

Divorce is expensive in a number of ways. Attorney fees can be substantial, and one partner may have to pay alimony and/or child support. But what often takes divorcees by surprise is all of the hidden costs. A good lawyer can help you get a fair shake, but you could still experience a number of financial setbacks.