We’ve talked about a lot of divorce legal issues on this blog, including property division and child custody. Each of these issues is important and can dictate what your life will look like after your marriage is dissolved. But there’s often another matter that is often overlooked during divorce proceedings until the parties are deep into it: marital debt. Just like marital property, marital debts need to be divided in a way that is fair, but figuring out how to do so can be challenging to say the least.
While ownership of property can be transferred easily enough, dividing up debt can be difficult, and failing to do so appropriately could leave you on the hook for debt that you never intended to be responsible for. Let’s take a look at some of them.
- Co-signed loans: We see these a lot in marriages. A co-signer might be named on a mortgage, a car loan, or student loan. While you and your spouse might agree that the person who keeps the property backed by the loan, or the individual who used the loan for schooling, should be responsible for the debt, it’s not that easy. This is because any contract you’ve signed with a lender supersedes a divorce order. So, even if there’s a court order saying that you’re spouse is responsible for all payments on an auto loan, if you’re a co-signer then the lender could still come after you for payments if your spouse fails to keep up with them.
- Credit card debt: How this type of debt is divided depends on whose name is on the account. If it’s a jointly-held account then, again, you might be on the hook for payments if your spouse doesn’t keep up with them, regardless of any kind of arrangement you and spouse might have.
- Medical debt: This type of debt will probably be split equitably, and perhaps evenly depending on the circumstances. Of course, this is wholly dependent upon when the debt was incurred and how it has been paid off during the course of the marriage.
If reading this makes you nervous, then you should take comfort knowing that there are some things that you can do to protect yourself from marital debt issues in divorce. One is to simply work with your spouse to pay off jointly-held debt before starting divorce proceedings This will make things much more simple once you enter the process since each party will then be able to keep his or her debt.
Another option is to refinance jointly-held debt so that there is only one debt holder for each account or loan. That way you won’t be on the hook for debt that you thought your spouse was taking care of. This might be especially useful when it comes to auto loans. You might also want to talk to your spouse about selling assets that are backed by loans and splitting the proceeds. This option is often utilized when dealing with family houses. Don’t forget to cancel all jointly-held accounts once you’ve gotten these debts squared away.
You might even be able to enter into a post-nuptial agreement prior to initiating divorce proceedings. This type of marital contract specifically lays out how assets will be divided and debts will be handled in the event of divorce. Of course, these agreements have to be an agreement and it has to be fair to a certain extent.
If you don’t appropriately address debt in your divorce, then you could be taken by surprise by debt collectors who come to you looking to recoup something that you didn’t think that you owe. This can be stressful, sure, but it can also affect your credit score, which could have a ripple effect across nearly every aspect of your life. Additionally, if you continue to be a co-signer on a loan or jointly hold accounts with your former spouse, his or her filing for bankruptcy could leave you solely on the hook for that debt.
If you want to avoid these outcomes, then you need to know what you can do to protect yourself. If you want to better ensure that your finances won’t be ruined by your divorce, then work closely with your divorce attorney to address both asset and debt division.