Let’s face it, divorce is horrible. The process is often a testing time for both parties and can sometimes result in resentment and financial damage for both.
How is debt divided in a divorce?
During the marriage, most people will pool funds together into a joint bank account. This makes paying everyday bills easier and allows balances to be viewed by both account holders.
The problem in divorce is that whatever debts have accumulated through the use of this account and named signatories on loan agreement documents are classed as joint debt. This is also the case for any utility bills, purchase agreements, and other debt obligations.
The splitting of assets is crucial in divorce. We have outlined some of the things you should do in this situation to avoid complications.
Once a judgment has passed on divorce, the court will proceed to divide the debt & assets between the both of you. They will also decide who should pay what and when it will be due. Each state is different when trying to decide the best equal ratio of assets between both parties but each state does this differently. For example, if one person is awarded property there might be more debt or financial obligations that come with that.
Some courts may decide that one party brought more assets into the marriage than the other and they deserve more. Other states may consider all assets to be owned equally regardless of who brought the asset into the marriage. State divorce laws are different so keep this in mind! divorce decrees explain how the debt will be divided.
Here are the different types of debt affected by divorce;
- Secured & Unsecured Debts
- Auto Loan Debts
- Credit Card Debts
- Medical Debts
- Mortgage Debt
- Credit Card Debt
Most likely you will not be responsible for the other parties’ credit card debts, obviously, if this is a joint credit card debt it will be included as a joint account.
Some states consider a person’s credit card debt to be included in total debt accumulated regardless of the named signatory.
If you are both on the mortgage it would be favorable to sell the house as soon as possible. This way you could release capital to help with other divorce issues and allow you to make new plans for either renting or securing a new home.
The property may take time to sell so you should put a plan in place with your partner on how to navigate this. You could both make equal payments to the mortgage company to ensure the property is at risk.
Buy out your partner if possible
You could also explore the option of buying out your partner from the property with an agreement in place. In most cases, the person that is awarded any child custody gets to take control of the house.
One party could decide to keep the home and in this case, they must have the other party removed from the mortgage loan agreement. You could also look at potential options of refinancing the mortgage without your partner named on the agreement.
If your partner files for Bankruptcy
If your ex-partner files for bankruptcy due to being unable to pay off debts this could affect you. The bankruptcy wouldn’t protect you if they are applying to remove a joint debt account – this option only protects the person that filed.
Creditors can then look at the option of pursuing you for their debt and the full amount. The bankruptcy could also appear on your credit report.
You need to ensure and check your credit files as often as possible for any changes and any notices of bankruptcy for a joint debt.
Pay off your debt as soon as possible
The best way to avoid complications during divorce debt is to simply pay it off as soon as possible. Understandably sometimes this is not possible so the obligations are often split between both parties.
Try and close any joint accounts, credit cards, and unsecured loan accounts as soon as possible. Get your finances in order and ensure you don’t end up paying for your ex-partners’ mistakes!
If we can offer some advice on your divorce debt and how to protect yourself and your assets please feel free to contact us or call us. We have helped 1000s of people navigate their divorce debt obligations.