Divorce and bankruptcy: Why one often follows the other

This article looks at the financial challenges that often cause divorcees to file for bankruptcy.

Divorce represents a major upheaval in one's circumstances. Not only does the breakdown of a longterm relationship bring with it plenty of emotional pain, but the financial fallout from a divorce can also be severe. Untying the financial knot that couples have built up between them during their marriage can be difficult and costly. For this reason, divorce and bankruptcy often go hand-in-hand, with many divorcing spouses often encountering severe financial difficulties. Below is a look at why divorce can lead to bankruptcy and how to alleviate some of the financial toll that divorce can cause.

Divorce and bankruptcy

As Investopedia points out, divorce is one of the main causes of bankruptcy. Like medical expenses or job loss, divorce often represents a sudden upheaval in one's finances. Disentangling one's assets and liabilities from the other spouse can be costly, while new expenses, such as child support and spousal maintenance, can also be high. Furthermore, the cost of supporting oneself on a single income is more than many people can bear.

In other cases, as U.S. News & World Report notes, the other spouse may take actions that end up hurting one's credit rating, such as by failing to make payments on joint accounts. If one's credit rating continues to decline then it can be difficult to access new credit at low interest rates, which in turn can lead to further financial troubles.

What's worse is that many people fail to understand beforehand just how big of an impact divorce will have on their finances. Therefore, when the marital breakdown finally arrives it can be easy to feel overwhelmed by these new financial pressures.

Protecting one's finances

Fortunately, many of the worst financial setbacks that often follow a divorce can be avoided with a little homework and planning. One of the most important things to do is to close or freeze any accounts that one may share with one's ex-spouse. Disentangling one's finances from a soon-to-be ex-spouse is something that should begin as soon as possible.

Also, it is necessary to do a budget for how much one will need in order to live comfortably after the divorce is finalized. Far too often people expect to continue living the same lifestyle as they had during their marriage even after their divorce. While this may be possible in some cases, for many people downsizing one's life - including, possibly, moving into a more affordable home and getting a better handle on expenses - will be key to avoiding the worst financial hardships that divorce often leads to.

Family law and bankruptcy

A family law attorney can actually help people avoid or deal with bankruptcy during a divorce in a number of ways. An attorney's job is to look out for the best interests of his clients, including by making sure clients understand how a divorce agreement could impact them down the road. Furthermore, an attorney who is experienced in handling the complex ways bankruptcy and divorce often overlap will be able to provide clients with the most informed advice on how to move forward through the divorce process.