It is routinely stated that fifty percent of marriages end in divorce. No matter how high specified that statistic can be, the truth is that many marriages do end. Part of splitting with your spouse means taking care of debt that arose during the divorce. In a perfect world, both people walk away for the debts they created and with those debts in their own name. Unfortunately, that state of salvation can be unreachable.
Legal Liability for Debt
In a community of property state, debt incurred during the marriage will not necessarily be divided according to which partner’s debt. Instead, you can both be equally responsible for debts that are made only by one partner, even without the knowledge of the other spouse.
In other states, fair distribution states, the court will assign the blame responsibility based on the blamed person. Typical debt belongs to the ex-spouse whose name is on it. That would leave you on the hook for your debt and your spouse on the hook for them.
No matter how the court distributes the debt, the banks still expect you to pay the debts in your name. The original credit card or loan agreement replaces a divorce, at least in the eyes of the bank. Debt distribution can create a problem when a spouse has been sentenced to make payments on a debt that is not in their name or one that is held jointly.
Let’s say your ex is responsible for making payments on a credit card in your name. Your credit is affected when your ex-spouse does not track payments on accounts with your name, even joint accounts. You can take legal action against a spouse who is not going to court to take payments into the account. But by the time you go to court, your credit may already be ruined.
Work Out Debt Issuers For Divorce
Try to get the debt in the name of the spouse responsible for the debt has been completed. This will not be easy and requires both to work together, but the hard work will be needed to get you off the hook for debt that is not yours. For credit card debt, that can mean transferring balances from other credit cards or consolidating the funds with another loan.
Major loans such as mortgages and car loans are more difficult and often require the refinancing of the loan in just the name of a person, ie the person maintaining the assets. If the divorce has already been completed, the lender may allow you to remove your name from the loan and replace it with the name of your ex-spouse. You may need to divorce them stating your ex-partner is responsible for the mortgage payments. If this does not work, consult with your lawyer about having the court sell the asset and use the proceeds to pay off the loan to avoid default.
Bankruptcy an ex-spouse may affect you
Your ex-spouse may choose to file for bankruptcy if they cannot keep up with debt payments and other financial obligations. However, their bankruptcy does not protect you unless you serve as well. In fact, it would get worse for you if your ex-files go bankrupt
When a former spouse files bankruptcy to take away their joint debts, these debts are not cleared in bankruptcy court. Instead, bankruptcy wipes that person’s liability for the debt. The creditor will pursue the remaining debtor, the one who does not file for bankruptcy, for the full amount of the debt. Sometimes the bankruptcy may wind down on your credit report, even though you don’t have the one filing the bankruptcy.
Protect yourself against future Debt
Be careful about leaving joint accounts opened after the divorce, or even leading up to it. Leaving a credit card or line of credit open is dangerous. Your ex-spouse can balance from their own accounts accounts that you hold together. Or they can incur the balance making you pay for purchases.
In the case of authorized user accounts, the creditor only holds the primary account holder responsible for the debt. However, non-payment on the account could affect the authorized user’s credit history because the account is listed on their credit report. A simple phone call can solve authorized user issues.
To protect your credit, you can choose to pay yourself off the debts and go back to court to have your ex-spouse repay you. This can be expensive, but it is the alternative to losing your good credit. Realize that if you pay off the debts, you can never get the money back from your ex-spouse, even with a court order. Alternatively you can file for bankruptcy, but consider it careful since the bankruptcy stays on your credit report for 10 years.