Divorcing couples all-too-frequently argue about splitting up the marital assets. Not all of them give much thought to any marital debts.
In the 41 common law states (as opposed to the few community property states), the court will split any debt incurred within the marriage period as it thinks equitable. That does not mean split in half; the court will attempt to make a “fair” assessment of the debts owed and what each partner can pay. Usually, the spouse who earns the most money will end up paying the majority of money due.
This differs in community property states, where both assets and debts are split 50-50
How To Divide Marital Debt
One of the first steps in getting a divorce is for the couple to develop a debt plan. While it may be difficult for the partners involved to sit down and have a reasonable discussion, if it doesn’t happen, there can be ultimate negative financial consequences, as well as a resultant lowering of the couple’s credit score.
Individual debts, such as loans or credit card debt in the name of one party, are usually taken care of by the party in whose name the debt is. On the other hand, joint accounts are in both names, and the creditors just want payment. They are not interested which name will provide the payment. Even if the card was only used by one spouse, if it is a joint account, the couple is jointly responsible for payments. That applies to the common law states. In the nine community property states, even if your name is not on the card, you may be held responsible for half of the debt.
When you begin the divorce process, it is a good idea to close all joint credit cards to prevent a spouse from continuing to accumulate debt and leaving you responsible for payments.
Cosigned Credit Card Accounts
If you co-signed a credit card application for your spouse because he or she was unable to obtain a card on his or her own, you have acknowledged responsibility for payment, and your signature will be treated as such. Fortunately, judges have more flexibility in common law states.
A mortgage can be in one or both spouses’ names. If it is in one name only, the judge will consider the couple’s financial situation, why it was put in only one name, and how the mortgage payments or the assets from the sale of the house will be divided.
In a community property state, the house may be considered marital property even if it is in one party’s name only. In such a situation, it is a good idea to consult with an attorney.
If the house is in the couple’s name, the court will consider both their financial situations before deciding how to split the proceeds of the house or the mortgage payments.
Matters become a bit more complicated when the names on the mortgage and the title to the house are different. Both names may be on the mortgage while only one name is listed on the deed. That means only one partner owns the house, while both have accepted responsibility for the house’s mortgage payments. Whoever is listed on the mortgage is considered liable for its payments. In the event of a divorce, if both names are on the mortgage, one name may need to be removed if the mortgage is getting refinanced. Removal of that person from the deed is usually done simultaneously.
The court usually considers individual circumstances in the event of medical debts. Was the couple still together? Was it elective or emergency treatment? The same questions will be considered if the medical debt applies to a child.
Your Ex Files For Bankruptcy
If your ex has filed for bankruptcy, any joint debt must still be paid. The ex with the bankruptcy may no longer be responsible, but the creditor can now pursue you for full payment. However, court-mandated child support and alimony are not affected by a bankruptcy filing and these payments must still be made.
Your Ex Refuses to Pay His Share of the Debts
It can happen. If your spouse refuses to pay any joint debt as ordered by the court, it is in your best interest to pay it yourself. One reason is that the creditors will still hold you responsible; the second reason is that non-payment of any debt with your name on it will affect your credit score. You may petition the court to force your ex to pay, but in the meantime, you should be making the payments and requesting reimbursement for any portion belonging to your ex.
When it comes to divorce and debt, couples can prepare for the inevitable by not accumulating debt during the divorce process. They should sit down and make a list of all debts and who they consider responsible for payment.
Prepare a list of disputed debts separately.
Before the divorce is finalized, the couple is required to sign a Settlement Agreement. This is a legal contract outlining all issues, including the division of assets and debts. The more the couple can agree on when it comes to debt payment, the less the court will interfere and take control and decide for them.
The legal process can get difficult, which is why we always recommend that you seek the assistance of counsel; or at least have a consultation. Schedule a consultation with one of our attorneys today to review the issues of your case, the legal options you may have, and certain rights that pertain to your unique situation.
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