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I can get this effect very easily in Photoshop using the stroke layer style and making it a shape burst gradient, but I want to be able to do it in illustrator so the stroke around the text can be a separate editable path. Is it possible to do this in illustrator?
You can simply add new strokes, each increasing in size, via the Appearance Panel.
Note, the strokes are all below the <Characters> item in the panel.
The initial white stroke is used to create the negative space around the characters themselves.
If you then want independent paths for each color, follow these steps:
choose...
Object> Expand Appearance
Object > Ungroup
Object > Expand
Object > Ungroup
Object > Expand
Pathfinder Panel > Merge
That will result in a separate shape for each color with the contour of the characters.
