smart spending

10 ways to avoid divorce disaster

4. Deal with debt strategically

One of the biggest sticking points in a divorce settlement is dividing marital debt.

Your ultimate goal is to be divorced from your spouse, including his or her debts.

If you and your soon-to-be ex-spouse have joint credit cards or other revolving debt, start paying down your account balances as soon as possible because you're both equally liable for that debt in the eyes of the creditor.

"A divorce decree might say he gets all the joint credit card debt, but that's not going to get her name off of the account and that's not going to relieve her of responsibility if he defaults on them," says Fadi Baradihi, CEO of the Institute for Divorce Financial Analysts.

"What most people don't understand is the fact that a loan agreement or credit card agreement will not be trumped by a divorce decree."

Your spouse may be tempted to go on a spending spree with a jointly held credit card before your divorce is finalized, so you may have to close some of the accounts altogether. Your credit score may temporarily take a hit, but it's a better strategy than starting your new life with mountains of newly acquired debt.

If you decide to keep jointly held accounts open while divorce proceedings are ongoing, make sure the bills get paid on time. Baradihi suggests both parties split all bills down the middle.

It may also be a good idea to order a copy of all three credit reports and start opening individual lines of credit if you can.

5. Check financial statements for errors

When divorcing couples own a business together or have a lot of assets to divide, it's critical that financial statements are accurate.

Check for red flags like underreported income, questionable business write-offs and large, recent purchases made in the name of the business.

This is one area where things can get complicated, so you may have to consult with a good forensic accountant or a Certified Divorce Financial Analyst, and that won't come cheap.

The average cost for a Certified Divorce Financial Analyst, for example, is $150 to $250 per hour, according to Baradihi, a Certified Financial Planner and Certified Divorce Financial Analyst.

6. Alimony and child support

Family support is typically paid in the form of alimony, child support or both. It all depends on the financial situation of each party and the terms of the divorce settlement.

It's important to know the rules governing family support because the Internal Revenue Service treats each type differently for tax purposes.

The alimony recipient generally pays taxes on that income and it's typically deductible by the paying spouse.

Depending on his or her tax bracket, the payer could get a tax advantage if child support is bundled into the alimony payment.

"If one spouse is in the 35 percent tax bracket and the other is 15 percent, it makes sense that it (family support) be done in some type of alimony scenario because the payee gains the 20 percent tax difference," Baradihi says.

Child support, however, is never deductible by the payer, and the payment received is not taxable, according to the IRS.

A few more things to keep in mind about alimony and child support: Alimony typically ends when you remarry or die.


Child support usually ends at the age of emancipation, which is typically between 18 and 23, depending on the state you live in and other circumstances.

          Connect with us

Connect with us