A guide to managing divorce and your finances

Community vs. individual property

Among the first things to figure out are which assets are community property and which are individual property. A basic guideline is that anything acquired during the marriage could be considered community property, while anything you had before you were married may fall into the category of individual or separate property.

How to handle debt

How you approach debt depends on what you’re dealing with and whether your accounts are individual or separate. In general, debt in your name is considered yours, no matter who racked it up. If your soon-to-be ex has been using your credit card to run up bills, you might still be responsible for paying that debt later.

Each of you should get a copy of your credit report and review it, noting all the accounts, the balances, and whether the accounts are joint or individual.

Joint loans and credit cards:

• Decide whether you want to pay them off now or divide and conquer later.
• If one party is assuming the debt, it should be refinanced into that person’s name.
• Joint credit cards should be closed. Most credit card issuers will allow you to close joint accounts and pay them off over time, if necessary.
• If your ex is an authorized user, and it’s not a true joint account, you can remove them from the credit card without getting permission.
• In a contentious divorce, a judge may apportion the joint debt, noting each party’s responsibility in the divorce decree. Until the debt is paid off or a creditor agrees to remove one person from the account, however, creditors see you both as equally responsible.

Mortgage debt:

• If one person is staying in your marital home, the mortgage needs to be refinanced into their name. A nonworking spouse might have trouble doing so.
• Depending on the situation, if one partner is ordered to pay alimony, it could be considered income for a nonworking spouse, but they may still need to get a job to qualify for refinancing on their own.
• Consider selling the home, paying off the mortgage, and dividing the proceeds. Each of you can then use your portion for a down payment on another home.
• It might be possible for you both to remain on the mortgage until the home is paid off. You’ll need a co-ownership agreement and to be on good terms for it to work.

Think of the children

If you have kids, you’ll need to figure out custody and child support arrangements (or have the state do it for you). But you must also decide who’s paying for child-rearing expenses, including health care coverage, activities, hobbies, and of course food. You might:

• Split costs 50-50 after child support and other items are factored in.
• Split costs according to proportional income. One spouse might pay 70%, while the other pays 30%, depending on how incomes compare.

If the spouses can’t agree about how to foot the cost of activities, it might fall on the one who’s most passionate about piano lessons, for example, to suck it up and cover the full cost.

One final consideration, now and/or in the future: college costs. If you have a 529 plan or other savings earmarked for the kids’ education, you’ll need to decide who will manage each account until it’s time to use it. And how do you and your ex-spouse plan to pay for college when the time comes? It’s best to set expectations now, both with each other and with the children.