Finance Thinkers

Divorce and Debt….

August 20
12:04 2013

That vow of for better or worse also meant that you share in whatever debts you and your spouse accumulated in the marriage. Mortgages and credit cards are usually the biggest joint debts. You are both responsible for anything you have signed together like joint tax returns, joint credit card debts, joint mortgages or loans. If your spouse is spending money recklessly after you file for divorce, file a motion with the court explaining what is happening and ask for an early hearing.

Keep track of any money you pay on joint debts, especially when the debt was your spouse’s responsibility.

If you live in a state where all the property acquired during the marriage is put in a pot, judges have enormous discretion as to how they divide marital debt. If your state considers only property acquired jointly, judges consider who incurred the debt and who is in a better position to pay. Other states determine which spouse is responsible for the debt.

Essential things to Remember:

  • If you do share joint credit cards then you should cancel them as soon as you know your marriage is ending to insure that the balance does not increase any further. Be sure to include on your list not only your major credit cards but your department and gasoline charge cards as well. You will also want to get a new credit card in your name only so that you may begin to build individual credit.
  • If your spouse is unable to pay a debt assigned to them in the divorce agreement, the credit card company or loan officer can legally require that you pay the debt. Late payments made by your spouse may show up on your credit report.
  • In most states, any debt that was incurred by your spouse BEFORE you married is their sole responsibility.
  • According to the Federal Trade Commission, a creditor, by law, cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit. In the case of a mortgage or a home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.
  • If you are given a portion, or all, of a marital debt to payback- consider contacting the lender to negotiate a lower interest rate. Many companies will offer a slightly lower rate if they think they will lose your business.
  • Attorney Gayle Rosenwald Smith suggests that if you do hold joint debt you may want to borrow money, in your own name, to pay it off. This way you are only responsible for individual debt.
  • Know that your credit card company, bank or mortgage company are not bound by your divorce agreement. Whomever’s name is on the dotted line is responsible, no matter who filed for divorce.
  • If you and your spouse have filed joint tax returns that you think may not have been correct you will want to speak with your attorney about adding a clause to the agreement that states that whoever is responsible for the errors be responsible for paying the tax due and or penalties.

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