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Managing Your Finances and Looking for Work After Divorce

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Handling Your Debts

Silver Linings

If you've been held responsible for a spouse's debt, you may seek recourse in the “Innocent Spouse Rule,” a provision in the Internal Revenue Code. Under this rule, if you can show that you are completely ignorant of your spouse's wrong-doing, you might not be held liable. Check with your accountant to see whether you fall into this category.

In addition to generating income and establishing credit, you will have to come to terms with your debt. You and your spouse most likely have joint debts. These would include a tax debt, a mortgage, a car loan, and credit cards. If you are the non-moneyed spouse, you might have your name on the mortgage or car loan statement anyway; this means you are in debt—even though you have no income to offset the debt.

Third parties, such as the IRS and banks, don't care whether you are getting maintenance or child support. They don't care if you are divorced. They just care about the money you owe them and how they will get it back. They are not bound by the divorce settlement. They will hold both you and your spouse liable for payment.

Jim, for instance, owned a construction company. One year, he hid income by simply not reporting it on his income tax statement. His wife, June, was shocked to learn that the IRS held her as well as her husband liable for his income tax evasion. She was not protected by their divorce settlement because the couple had filed their income tax statement jointly.

Red Alert

As far as the credit card companies are concerned, you remain responsible for all the joint credit card debt your spouse incurs, no matter whether you're divorced or think you're protected by a separation agreement. Here's an example: Stephanie, knowing she was planning to leave her husband, Steve, went on a shopping spree before she lowered the boom. She racked up about $5,000 in purchases. Although the judge ordered her to be totally responsible for these debts in the divorce decree, Stephanie never paid them. Instead, she filed for bankruptcy protection. The credit card companies went after Steve for their money. Unfortunately, Steve had no defense. He was jointly liable for “Stephanie's” $5,000 debt.

Selling Your House to Make Ends Meet

If your living situation and financial status have changed for the worse because of your divorce, you might consider liquidating some assets or selling the house (if it was awarded to you) to help with your cash flow. Before you make this decision, be sure to speak with your accountant or a financial planner. Remember, your house is an asset as well as a home. If you have children, their emotional needs must be considered. At the same time, if you've received the house through a divorce settlement or judge's decree while your spouse has gotten the liquid assets, think carefully about whether you have enough cash to live comfortably in the house or whether you should move into less expensive living quarters. If the monthly payments on the house are small, you might as well stay where you are.

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Excerpted from The Complete Idiot's Guide to Surviving Divorce © 2002 by BookEnds, LLC. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit the Idiot's Guide web site or call 1-800-253-6476.

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