You spent the first part of your marriage finding all the ways you could meld your lives together. The latter part has been spent just trying to keep it together. Now that you’ve decided to step into the realm of divorce, you’re wondering how to separate everything again. If you have mortgages on homes, loans on cars, and credit cards for everything in between, how do you go about dealing with divvying up your debt in divorce?
How to split debt during divorce
Know What You (and They!) Owe
When it comes to debt in divorce, state laws can vary. However, courts usually distinguish between individual debts that you brought into the marriage and the debts acquired during the marriage. Pre-marital debts typically remain the sole responsibility of the one who collected it. However, this can get a little tricky, if those debts were rolled into a joint account. This is why it’s important for both parties to be fully aware of your overall financial position – including both your assets and all your debts.
- Credit card debts
- Student loans
- Vehicle loans
- Home mortgages
- Personal loans
In community property states – states, where all assets and debts accrued during the marriage, are divided equally between the two parties – the responsibility for these marital debts is not necessarily assigned based on which spouse incurred the debt. It all depends on how the settlement looks when the dust settles.
The fact is, no matter how the court awards alimony or divides up the debt, banks and lenders expect the debts to be paid as agreed. The original agreements and contracts with the lenders supersede divorce decrees, and creditors can still come after you for debts that you did not create. For example, if your ex is assigned the responsibility of making payments on a credit card in your name and she fails to do so, it will negatively impact your credit. Yes, you can take legal action against her, but by the time you get to court and a settlement is reached, your credit may have already tanked.
All’s Not Fair In Love…
Realize that equitable division of existing debts is not always 50/50 equal. In the instance that one spouse reports significantly higher income than the other, the judge may determine that “fair” means the more established spouse receives more responsibility than the other spouse for the debts acquired during the marriage – regardless of whose fault the expenditures were. In addition, the value of assets awarded and the distribution of the responsibilities for marital debts are also often related. Navigating this territory can get complicated. Talking with a family law attorney can help you understand your best options and discuss how to potentially negotiate a successful settlement of your debt in divorce.
Preempt Dealing with Debt in Divorce
The best way to deal with debt in divorce is to pay off as much of the debt as possible prior to filing for divorce. Work together to decide how debts should be assigned before entering divorce proceedings. It’s not easy, and may require some assistance from a family attorney, but it can be vastly worth the effort. Once you know what you’re likely going to be financially responsible for dealing with moving forward, you can start working on solutions like transferring balances to credit cards under the correct person’s name, or consolidating the balances of cards with another loan. You may also consider refinancing loans for assets, like the house or car, into the person’s name who’s keeping the asset. If you and your spouse are unable to come to satisfactory conclusions and solutions, talk to your attorney about how to appropriately sell assets to pay off loans to prevent defaults.
Don’t Go It Alone
You worked hard to put your lives together. Now, as you consider joining the 40 to 50 percent of other couples experiencing the same challenges, you may need help carefully separating the pieces again. It’s not an easy process, but with the right family law attorney, you can leverage the ways that debt in divorce is treated and come through the experience more financially prepared. Talk to a professional with the Alabama Family Law Group, today.