‘This has gotta stop': This Cleveland man going through a divorce is spending $970/month to pay off his truck — and now his ex wants him to eat $15K more of debt. Dave Ramsey responds

Corey’s finances

With $65,000 in combined credit card debt, as he told Ramsey, Corey and his wife are already in a deeper hole than the average American. A report by 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 roughly six times higher, while his wife wants him to take half of hers ($30,000) too.

That’s just the tip of the debt iceberg.

The couple also has a mortgage worth $132,000 on their house, which was recently appraised at $174,000. On top of that, Corey’s car payments are $970 a month, which is also higher than average. According to Bankrate, Americans pay on average $729 per month for new cars and $528 per month for used cars.

To make matters worse, Corey would owe money to the auto lender if he wanted to stop making monthly payments. Used car prices have dropped in recent months, which means a growing number of cars are in “negative equity.” Corey says he’d owe $4,000 to the lender if he traded his truck in.

Multiple outstanding debts, monthly payments and a truck with negative equity have strained Corey’s personal finances. He admits that he’s on the verge of financial ruin. “At this point of time, I’m struggling,” he says. “I have maybe $30 [in the bank]. I’m going through it right now.”

Fortunately, Corey has a 401(k) retirement account with a modest $35,000 balance. Unfortunately, his partner is seeking half of that in the divorce, too.

“The problem with divorce is that it turns a marriage into a business transaction,” Ramsey said. He suggested a simple game plan to help Corey navigate this painful “business transaction.”

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The game plan

Although Ramsey has never been divorced (he’s been married to his wife Sharon for over 40 years), he does have plenty of experience helping people with it. In his view, divorce proceedings are simply a way to divide 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 split marital assets (and debts) 50-50.

Meanwhile, 41 other states have “equitable distribution” laws that split assets based on several different factors, negotiations between couples and the judgment of courts.

Ohio, where Corey lives, is part of the latter group with equitable distribution. That means he has a chance to negotiate with his wife to split assets and debts.

Despite this, Ramsey recommends creating a divorce agreement that’s as close to 50-50 as possible. “If you come to something close to that and pre-approve it, the judge will approve it,” he says. “If you come to something way out of balance, the judge is probably not going to approve it and kick out your pre-agreed settlement because it’s too stupid.”

He also recommends getting rid of the truck. A $970 monthly payment is, according to him, “in the cray cray zone.” Paying off the $4,000 negative equity or simply selling the truck to a private buyer is worth the effort.

Ramsey also recommends selling the house. This would allow Corey to give his soon-to-be ex-wife half the stake of that asset instead of disrupting his 401(k). “Don’t let the house stay in the deal,” he suggests. “Because you’re on the mortgage. And if she doesn’t pay it, you’re screwed. Force the sale of the house. Give her part of the proceeds. That way your 401(k) stays intact.”

This game plan should allow Corey to walk away from this ordeal with only $35,000 in debt, a 401(k) and lower monthly payments. A perfectly stable situation — which should allow him to move on, start making money again and pay down the remaining debt over time.