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What Happens to Your Debt When You Get Divorced?

  • Sep 17, 2018
  • The Harr Law Firm

While divorcing couples often have significant assets that must be divided equally, you’re probably also wondering what happens to the debts you have accumulated during your marriage. For example, you may have secured debt, such as a mortgage or vehicle loans, as well as unsecured debts, such as credit cards and personal loans. In a divorce, each type of debt is assigned as fairly as possible to ensure an even split. But that’s not all you need to know.

Debt Is Split Mostly Evenly

Debt is split mostly evenly between the divorcing partners. For example, you may each keep one of the cars with their associated loans. Of course, an equal distribution doesn’t mean it’s going to happen 50/50. Instead, one spouse may receive more debt, especially if they also get a more substantial asset.

In most cases, personal credit card and student loans will be assigned to the borrower. That being said, it’s possible for the court to order one spouse to pay a certain amount of alimony that takes these debt payments into consideration. Your divorce agreement will spell out in detail which spouse is responsible for paying which debt, but you may still be liable to the creditor.

You’re Still Liable

Most people don’t know this, but the creditor doesn’t care about your divorce agreement. If both of you signed the loan, the creditor is still within their rights to try to collect the debt from either one of you. If the debt is not satisfied, you may see negative remarks on your credit report and a drop in credit score. You may also be charged late fees and other non-payment penalties.

The good news is that the court does care when your ex isn’t paying their debts. Generally, you can go back to court to force your ex to pay the debt they are supposed to take care of. Additionally, you may even be able to sue them for damages. In the meantime, you can make the payments to your creditor to prevent further damage to your credit, but you should keep the receipts and request reimbursement from your ex through the court system.

Pay Off Debts

It’s easier said than done, but the best thing you can do is to pay off your debts as quickly as possible. If debts can be satisfied during or shortly after the divorce, it makes the entire process less stressful. If that’s not possible, you should at least make sure that you’re not in danger of losing an asset if your ex doesn’t pay. For example, if you’re keeping one of the cars with a loan, you should be the one to make the payments. Otherwise, you may find that your car got repossessed while you’re sleeping if your ex chose not to satisfy the creditor. Another alternative is to refinance every loan you have in both your names.

Refinance Loans

The process of getting divorced is easier if you can agree to refinance the loans you have together. If one of the partners agrees to keep the family home or a vehicle, your divorce agreement can stipulate that they must refinance the loan to get the asset in their name. Under those circumstances, it’s okay for you to relinquish ownership. However, you don’t want to have your name on a loan for an asset that is no longer legally yours. To ensure that your spouse follows through as agreed your lawyer may include an indemnity clause.

Consider an Indemnity Clause

Your divorce agreement should specify who will make the payments on your joint debts after the divorce. By signing the papers, you and your ex agree to pay as required. However, your credit rating is affected when the debt doesn’t get paid even if it wasn’t your fault. An indemnity clause in your divorce settlement allows you to take your ex to court for the money you had to pay to satisfy the debt when they wouldn’t. If you can’t satisfy the creditor, you may still receive damages from your ex for the consequences of their non-payment to your credit.

The financial decisions made during your divorce will affect you for many years to come. At The Harr Law Firm, our experienced divorce attorneys ensure that your assets and debts are divided fairly between the two of you. They can help you understand your situation and help you get a clean financial split. Give us a call or use our contact form to learn more!