One of the many complicated issues arising during a divorce is how to deal with the debt that accrues during the course of the marriage.
Paying off joint accounts or loans isn’t always as easy as splitting the debt down the middle, or “fairly and equitably” between you and your spouse.
What happens to debt during a divorce?
Often, as part of a divorce settlement or decree, one spouse is tasked with repaying a loan, even if both spouses’ names are on the debt, such as a car loan. However, if that party doesn’t follow through, your credit can take a hit. Here are some important things to know:
- Is your name on the account?: From a lender’s perspective, if your name is on the loan or credit card, you are still responsible for the debt, even if your ex is supposed to handle the payments.
- Check your credit: Your credit score can suffer if your name is on an account, and your ex-spouse misses payments. Credit bureaus don’t take your divorce into consideration.
- Remove your name: If your spouse is responsible for paying a car loan, credit card or other debt, try to have your name removed, which isn’t always easy.
- Refinance the debt: A cleaner route to go is to have the spouse responsible for the debt refinance it in their name and use the proceeds to pay off and close the joint account.
- Liquidate assets: The next best way is to sell off the item, such as a car or a house, and use the proceeds to pay off the debt and share what’s left. However, in some cases, the proceeds may not be enough to pay off the debt.
Be proactive in addressing marital debt
The best advice is to manage marital debt long before a divorce is final. If you are able to pay off all jointly held accounts, it can give both parties a fresh start. If any joint debt remains after a divorce, make sure you have access to all documents to monitor whether payments are made.
An experienced family law attorney can help you with a strategy, including the option to take legal action against a spouse who fails to live up to their responsibilities. The goal is to free you from unwanted and unnecessary financial burdens as you begin your new life.