Divorce can bring significant emotional and financial challenges. With the financial strain a divorce can bring, bankruptcy becomes a real possibility for many couples.
Understanding how the process of divorce can increase the likelihood of filing for bankruptcy can help you prepare for the future.
Division of assets and debts
During divorce proceedings, assets and debts accumulated during the marriage must be distributed fairly between the spouses. This process can be complex and may require the assistance of financial experts. However, even with fair division, the resulting financial situation for both parties may be less favorable than it was during the marriage. This can lead to increased financial instability and the possibility of bankruptcy.
Loss of dual income
In many marriages, both partners contribute financially to the household. When a couple divorces, the loss of a second income can significantly impact each spouse’s financial stability. Suddenly, one household must now support two separate households, leading to increased expenses and potentially reduced savings.
Alimony and child support obligations
There are cases where one spouse earns significantly more than the other or where there are children to consider. In such cases, the court may order alimony or child support payments. These ongoing financial obligations can place a strain on the paying spouse’s finances, potentially leading to difficulty meeting other financial obligations or unexpected expenses.
Difficulty qualifying for credit
Divorce can impact credit scores, especially if joint accounts close or if one spouse fails to make payments on shared debts. A lower credit score can make it more challenging to qualify for credit or loans, forcing individuals to rely on higher-interest options or accumulate more debt.
The United States Courts report that there were 452,990 total bankruptcy filings for the year ending December 2023. While divorced individuals make up only a small fraction of this figure, it remains the case that the need to file bankruptcy is a common situation that one should prepare for. This is all the more true in situations when a major life event can upset one’s finances, such as a divorce.
