Getting a Divorce? What You Need to Know About Your Debt

by Miranda Marquit · 2 comments

To say divorce is difficult is an understatement. It takes an emotional and financial toll that can impact you for years to come.

This is especially true if debt is a feature of your marital finances. Dividing up the debt is a big part of divorce, so it’s important to understand the implications associated with divorce and debt.

You’re Still Responsible for All Loans

“What many people don’t realize is that the court’s jurisdiction is between you and your spouse, not you and a creditor,” says Laurel Stocks, a family law real estate expert. “The court can order the husband, for example, to keep the house and make payments, but that does not absolve the wife from the loan.”

This is an important distinction to make, since it means that if your name is still on a loan, you’re still responsible for it. So, even though your spouse is supposed to make payments, if he or she drops the ball, you’re still on the hook. Starks continues with her example:

If the husband in that case doesn’t refinance into a new loan with only his name, the wife remains just as financially liable as she did when they were married. Her credit will be impacted if payments are not made on time, and it will continue to show up as a debt on her credit report.

As you go through the divorce, make sure that you keep in mind the issues associated with debt.

You Should Re-Name Your Accounts

In many cases, this means that you’ll need to re-name who is on the account. “Joint everything, credit cards, cars, and loans, need to be cancelled or put into one person’s name only,” Starks says.

It’s especially important to make arrangements with credit cards. You don’t want to leave your ex-spouse’s name on a credit card that you’re still responsible for. If it’s not a joint account, make sure that you have your ex’s name removed as an authorized user.

If you want to be really careful, though, it’s best to ask for a new account number and a new card, only in your name. There are numerous stories of people who have had their money taken and assets drained because they didn’t change things up.

Indeed, if you have joint bank accounts, it makes sense for each partner to get accounts in their own names so that the ex doesn’t have access to it.

If you have car loans and mortgages, you might have to refinance the loan to your own name (or make sure that your ex refinances to his or her own name). This can be somewhat problematic if you don’t have enough of your own credit history established to be able to carry the loan on your own. You might have to look for a co-signer to help you out until you’re able to re-establish yourself.

It’s not pleasant to have to think about these things, but it is necessary. If you’re getting a divorce, make sure that the debt is properly assigned with the creditor, and not just through the courts.

Have you had to divvy up debt during a divorce? Any tips for other readers?

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{ 2 comments… read them below or add one }

Property Marbella September 18, 2013 at 12:52 am

Most important is to try to be friends and not enemies during a divorce. Try to create a situation that does not involve financial problems for either party. After all, “you’ve loved each other at one time.”

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Jim Lichtenberg June 19, 2014 at 9:26 am

Don’t put your faith in The Courts . If there are large balances on your joint credit cards don’t pay your half of the balance off until the judge officially divides the debt in half . In my case I payed half of the balance off before our court date and I presented the statement to the judge , thinking it was the responsible thing to do and the judge took the remaining balance and still divided it between my ex spouce and I even though I showed receipts that I had already payed my half of the debt. So in the long run I payed 3/4 of the a balance on that particular credit card. The courts aren’t always fare or just. I learned the hard way !

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