Divorce is a process that can result in significant financial implications. This is because it isn’t just a separation of two individuals but also their assets, debts and financial responsibilities. The financial toll of divorce can be substantial, often leading to significant changes in one’s financial landscape.
Therefore, it’s important to understand what steps you can take to help protect your financial interests during this challenging time, especially if your financial situation is at all precarious.
What could bankrupt you during a divorce?
Marital assets and debts are typically divided between the parties during a divorce. This division includes real estate, investments, retirement accounts and business interests. Unfortunately, this process can leave you at a significant financial disadvantage even when handled properly.
Moreover, in cases where one spouse earns significantly more than the other, alimony (spousal support) may be awarded to help maintain a reasonable standard of living for the lower-earning spouse. Child support may also be mandated to help ensure children’s financial needs are met. These financial obligations can impact your monthly budget and long-term financial goals.
You should also note that divorce may involve legal fees, which can add up quickly. Both parties may be responsible for covering these fees, which can strain finances further. Therefore, budgeting for legal expenses and exploring options to minimize costs is crucial.
When should you file for bankruptcy?
When you realize your divorce will likely bankrupt you, it’s wise to get ahead of the problem by seeking legal guidance and, if necessary, filing for bankruptcy. However, it’s important to remember that timing is key when divorce and a need to file for bankruptcy collide.
This is because while divorce and bankruptcy are separate legal processes, they can significantly impact each other when intertwined. As the emotional strains of a failing marriage take their toll, financial issues can escalate, leading to insurmountable debts.
Another factor to consider is the type of bankruptcy you want to file because each discharges debt differently. On the one hand, Chapter 7 can be used to discharge most unsecured debts. Yet, this form of bankruptcy is only available to low-wage earners. On the other hand, Chapter 13 enables you to create a manageable repayment plan to clear debts over three to five years. This option can be suitable for those with a steady income. However, if you file for bankruptcy before you divorce, it can be challenging to continue to have your spouse’s finances impact your bankruptcy process for another several years.
If you anticipate that your divorce might cause financial ruin, you should consider filing for bankruptcy. It’s best to seek legal guidance concerning when to file and which bankruptcy option is best suited for your circumstances so that you can make the most of the opportunity and avoid complicating your situation in the process.