Divorce and Debt

Divorce is challenging for a variety of reasons. The legal aspect of divorce primarily concentrates on the division of assets and debts. Divorce isn’t just emotionally costly. It can be financially expensive, too.

Learn the basics of debt and divorce, so you don’t get caught off-guard in challenging circumstances: 

1. The rules vary from state to state. In some states, the name on the debt is the one responsible. In others, the debts are held jointly, regardless of whose name is on the account. Consult a divorce attorney to learn the laws in your state.
2. Joint cards equal joint debt. Both parties are usually equally responsible if both names are on the card. It doesn’t matter if you never used the card and your spouse charged $10,000. 

• After the separation, any additional credit card purchases or cash advances are the sole responsibility of the person who initiated them. The time at which separation is considered to have occurred depends on your state of residence.

3. Cancel any joint credit cards during the divorce process. The last thing you want to deal with is your soon-to-be-ex charging up the card or taking out a significant cash advance. Before canceling any card, be sure you have enough money or other credit to live on.
4. The courts don’t affect creditors. If your name is on an account, it doesn’t matter what the court decides to your creditors. If your name is on a credit card, car loan, mortgage, or other debt, you are still liable. This means your ex’s failure to make the loan payment can negatively affect your credit. 

• You can also still be sued for the debt. If your ex is responsible for the debt, you can sue your ex for not honoring the agreement. It can be a big mess, but going back to court is always an option.

5. Pay off debts or convert joint accounts to individual accounts when possible. This will make the divorce process cleaner and more accessible. Monitor your joint accounts and keep careful records if you can’t do this.
6. The bank is unlikely to remove either name from the mortgage. The more people responsible for the mortgage payment, the happier your banker is. It will be necessary to either sell or refinance the home to remove either party from the loan. 

• This is commonly the most significant debt a married couple will have and often creates the most drama during a divorce. The parent with physical custody of the children will often take possession of the home.
• If one of you has sufficient income and credit and has enough equity in the home, refinancing is a possible solution to this commonly sticky situation.
• In most cases, selling the property is the easiest way to relieve mortgage debt. Both parties are free of debt and responsible for their financial future.

7. Beware of signing a quitclaim deed. This deed does precisely what it says. It allows one party to give up all claims to a piece of real estate. It does not absolve one from the responsibility of ensuring the mortgage gets paid. You’ll lose any equity in the property and any use of the property. But you still have all the responsibility for the mortgage.

Divorce is challenging in many ways, including financially. The handling of debts during the divorce process depends on the state in which you reside. A reasonable divorce attorney can help ensure that you emerge from the divorce in the best possible financial situation.