What Happens to Debt During a Divorce?

Consolidating debt during a divorce is an absolute must for any couple seeking to get their finances back on track after marriage. Divorce process proceedings may be complicated by the fact that each party has different debts. Sometimes, the court considers the parties’ finances when deciding how to divide their debts. Other times, one party incurs separate debt, which becomes his or her sole responsi­bility.

Fairness and the ability to repay aren’t the goals; rather, equality and fairness are. If one partner earns more than the other, or if they’re given more property, then their share of the total debts might be greater.

As for community-based asset distribution, if you live in one of the nine states where community-based asset division is allowed, then half of the couple’s joint debts and assets will be split evenly between both parties. However, there are exceptions to this rule, so don’t assume that just because you’re married, you automatically get an equal share of everything. So let’s go through all the types of debts in divorce that are split and the division of property.

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Credit Card Debt

If you’re divorced, you may be responsible for any credit cards used by your ex-spouse. However, if they were opened before the marriage, you are only liable for half of the debt. In some cases, you may even be able to get out of paying anything at all.

1. Joint Credit Card Accounts Debt

If you’re going through a divorce, you might be responsible for any joint debts incurred during the marriage. However, a judge may decide that one party is better off financially than the other and order them to pay more than their fair share. These open lines of credit will need to be closed and or removed.

Each person is responsible for half of the debt on a joint credit account. When a joint account is opened, both parties must be named on the card. If one party leaves the relationship, they cannot close out the card without the other person’s permission. If an ex-spouse runs up charges on a joint card, the remaining partner may be responsible for paying off the debt.

woman unhappily looking at her credit card debt, Debt During a Divorce

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2. Cosigned Credit Card Accounts

A spouse may cosign for a loan when the primary borrower cannot qualify for a personal loan. This means that the co-signer assumes liability if the primary borrower defaults. The debt on the loan will be treated like any other debt in community property states and divided evenly between the spouses.

If you want to be removed from the loan, ask the borrower to let you off the hook. However, the lender might not accept your request if the borrower doesn’t qualify. Sometimes people will use martial assets like joint accounts or cards to pay for their separate debt. Your community debt is different.

Mortgage Debt

When determining who will be responsible for paying off the mortgage, or how the mortgage will be divided between them, courts look at things like whether the property was purchased before marriage, if there were any prenuptial agreements, and more.

If you live in a community-owned state, the home, even if it‘s in one person‘s name, may be viewed as belonging to the entire community. You need to consult an attorney to determine whether you own any part of the home.

A lender doesn’t consider just one income when deciding whether to approve a loan; they look at both individuals’ combined income and assets.

What is the Difference Between a Mortgage Loan and a Title?

The title to the house and the loan are two separate things. The person named on the title is the owner of the property. The person named on a deed is the one who owes money on the loan. If you no longer owe any money on the loan, then you should remove yourself from the title. You can do this by signing an agreement stating that you no longer own the property.

A title transfer can only be completed at your local County Clerk’s Office and requires signatures from both parties. Once the title transfer is complete, the former owner loses interest in the property and cannot collect any money from the sale. However, they do retain their name on the loan. If one party fails to pay, the lender can take legal action against them. They could lose their home, but it would not affect their credit score.

Medical Debt

In most states, courts will determine whether the couple was legally separated or not when the medical bill was incurred. Medical bills related to emergencies or medically necessary procedures may be treated differently than those pertaining to elective surgeries or unnecessary procedures. A judge will decide whether or not to award child support based on the individual divorce case. This includes any medical debt related to a child’s illness, birth, or emergency.

In community property jurisdictions, medical bills incurred during marriage are divided equally between both parties. Some courts consider marital medical bills to be joint obligations, meaning that both partners share equal liability for them. Other courts do not consider medical bills to be joint liabilities, so only one partner can be held responsible for them. Regardless of whether a spouse is liable for a particular bill, the division of responsibilities is typically based on how much income was earned during the marriage.

For example, if one party earns significantly more money than the other, then he or she would likely be responsible for paying off any outstanding medical bills. Depending on the law in each state, medical debts may or may not count as marital debts. If a spouse was not the primary earner, then the percentage of the bill that he/she would be responsible for might be divided unequally. This way, the non-earning spouse doesn’t end up having to shoulder too much of the financial load.

What if the Marital Debt isn’t Paid by my Ex?

If an estranged spouse fails to make payments as ordered by the court, your top priority should be protecting your credit score. This means repaying the money yourself if you can do so without causing further damage to your finances. If your name is listed on the mortgage or credit card, you’re liable — no matter what. Your lender may not know about the divorce, but they’ll certainly notice if you stop making payments.

Short-term payments will help protect your credit score. If you keep track of your payments, you can ask the courts to enforce the divorce decree you’re paying, as well as reimburse yourself for any payments you’ve already made. You must understand the difference between your separate debt and marital debt.

person calculating their debt, Debt During a Divorce

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Pay Off Everything Before You Divorce

The best way to prevent post-divorce financial stress is to pay off debts before finalizing the divorce. If that isn’t possible, agree with your partner to share responsibilities, so that one person pays the car payments and another pays the mortgage. People may think student loans are your own but when you become a married couple it becomes a joint obligation. This entire debt should be paid before marriage. That is your debt responsibility and debt after divorce can be tricky.

Lenders, credit card companies, and others are not part of the court proceedings. They just want their money back. If your signature appears on the statement, you’re responsible for paying even if your ex-spouse doesn’t agree.

To prevent any issues with dividing debts during a divorce, the best solution is to dissolve a joint bank account before filing for divorce. If possible, refi­nance the mortgage, auto loan, and other loans in one party’s name. If you want to get out of paying interest on multiple credit accounts, cancel them and transfer the balances to one account in each person’s name.

If you want to speak to a family divorce attorney in Greenville today, contact Greenville Family Attorneys. Call (864) 475-9393 for a free case review.

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