Many people have been forced into bankruptcy because of their divorce. This is especially true when divorce becomes particularly combative and the parties to the divorce action try to score wins against each other in court. It does not usually happen when the parties amicably work out their divorce and avoid court and huge legal fees.
But even when the divorce is amicable, it is possible to end up in bankruptcy because you still have to pay child support and spousal support and this can be a strain if your financial situation changes after the divorce. Living on a single income is also very hard for people who are used to having access to a full purse due to their marriage. Furthermore, mismanagement of money or failure to properly live within your means could lead to trouble and you could find yourself being forced into bankruptcy as a result.
If you keep the house after the divorce, beware. Nothing can get you into financial problems quicker than too much house that you cannot afford. There is a lot more to the house than just the mortgage. There are also property taxes which can be astronomical. For the average million-dollar home, plan on paying upwards of $20,000 per year in property taxes, on top of the mortgage. This is not even counting the maintenance and utilities. It is these add ons that can lead to trouble and before you know it you find yourself being forced into bankruptcy.
Credit card debt and overspending are other culprits. It is not unusual to find yourself leaning more heavily on your credit card when you are a single income household – especially if you are used to a certain standard of living and you don’t have the income to continue to live like that. This is especially true for women but can be true for men as well, where they use credit cards to maintain a standard of living they no longer enjoy due to their divorce and before you know it, they are forced into bankruptcy.
To avoid being forced into bankruptcy because of your divorce, consider the following:
- Create a budget and stick to it
- Don’t keep the house if you can’t pinpoint exactly how you are going to pay for it for at least one year without breaking into the bank.
- Try to find work ASAP
- Go easy with the credit card
- Contact your creditors and try to work things out and get extensions for deadlines
- See if you can get a friend or family member to bail you out
- Get the court to revisit how much you have to pay if you have changed circumstances
- Look for opportunities to make money and keep money flowing into your life
- During the divorce process, maintain a reasonable posture at all times to cut down on the number of legal fees and court fees you amass
- Don’t try to squander the family fortune to spite your ex and reduce how much they get in the settlement
- If you come into a financial windfall just before the divorce, disclose it immediately don’t try to hide it because the judge could turn around and give all of it to your spouse
- Sell off assets you don’t need to raise cash