‘This has got to stop’: This divorcing Cleveland man is spending $970 a month to pay off his truck — and now his ex wants him to eat up another $15,000 in debt. Dave Ramsey answers
Divorce can be financially devastating, as one Cleveland man recently found out.
Corey recently called into The Ramsey Show to discuss how his personal finances have been upended by an ongoing divorce and how his soon-to-be ex-wife wants him to take on even more debt. “This has to stop!” Ramsey replied, shocked at his situation.
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Although alarming, Corey’s predicament is not unique.
Corey’s Finances
With a total of $65,000 in credit card debt, Corey and his wife, he told Ramsey, are already in a deeper hole than the average American. A report from TransUnion found that the average credit card balance was $6,088 in the third quarter of 2023 – a 10-year high. Corey has $35,000 outstanding, which is about six times that amount, while his wife wants him to take her half as well ($30,000).
That’s just the tip of the debt iceberg.
The couple also has a $132,000 mortgage on their home, which was recently appraised at $174,000. Additionally, Corey’s monthly car payment is $970, which is also above average. According to Bankrate, Americans pay an average of $729 per month for new cars and $528 per month for used cars.
To make matters worse, Corey would end up owing money to the car lender if he stopped making monthly payments. Used car prices have fallen in recent months, meaning more and more cars have “negative equity.” Corey says he would owe the lender $4,000 if he traded in his truck.
Multiple outstanding debts, monthly payments, and a truck with negative equity have put a strain on Corey’s personal finances. He admits that he is on the verge of financial ruin. “I’m having problems at the moment,” he says. “I have maybe $30 [in the bank]. I’m just going through it.”
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Luckily, Corey has a 401(k) retirement account with a modest balance of $35,000. Unfortunately, his partner also demands half of that in the divorce.
“The problem with divorce is that it turns marriage into a business transaction,” Ramsey said. He suggested a simple plan to help Corey deal with this painful “business transaction.”
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The game plan
Although Ramsey has never been divorced (he has been married to his wife Sharon for over 40 years), he has plenty of experience helping people through it. In his view, divorce proceedings are simply a way to separate a “list of debts and a list of assets.”
In some states, these are simply split down the middle. Specifically, nine states have “community property” laws that divide marital assets (and debts) 50/50.
Forty-one additional states now have “equitable distribution” laws that divide assets based on various factors, negotiations between couples and the ruling of courts.
Ohio, where Corey lives, falls into the latter equitable group. This means that he has the opportunity to negotiate with his wife about the division of assets and debts.
However, Ramsey recommends drawing up a divorce agreement that is as close to 50/50 as possible. “If you come to something similar and pre-approve it, the judge will approve it,” he says. “If you come to something that’s completely out of whack, the judge probably won’t approve it and throw out your pre-agreed agreement because it’s too stupid.”
He also recommends getting rid of the truck. A monthly payment of $970 is, in his opinion, “in the cray-cray zone.” It’s worth paying off the $4,000 in negative equity or simply selling the truck to a private buyer.
Ramsey also recommends selling the house. This would allow Corey to give his soon-to-be ex-wife a half share of these assets rather than disrupting his 401(k). “Don’t let the house stick with the deal,” he suggests. “Because you have a mortgage. And if she doesn’t pay it, you’re screwed. Force the sale of the house. Give her part of the proceeds. This way, your 401(k) will remain intact.”
This game plan should allow Corey to walk away from this ordeal with just $35,000 in debt, 401(k) and lower monthly payments. A perfectly stable situation – which should allow him to move on, make money again and pay off the remaining debts over time.
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This article is for informational purposes only and should not be construed as advice. The provision is made without any guarantee.