The American Psychology Association has found that up to 50% of marriages in the United States end in divorce, and often bring with it divorce debt. While this may seem like a high statistic, many marriages do end in a split between spouses.
Part of separating from your significant other means that you have to discuss who takes care of the debts among the two of you. You might prefer to simply walk away with the debts in your name, but this may not be possible, as many elements of your finances are tied together as a couple.
At Cash Factory USA, we can help you learn everything you need to know about debt during divorce. Read on here to learn more about who gets the credit card debt in divorce, who needs to deal with the mortgage, and much more.
Your Legal Liability
If you live in a state that believes in community property, any debt created during the marriage isn’t divided according to the individual that incurred the debt. The couple is usually equally responsible — even if only one spouse made the payment. Sometimes, a spouse finds out about debt only during the divorce, as one of the individuals was concealing their purchases.
Other states have something called equitable distribution in which the court assigns the responsibility for the divorce debt based on the name of the purchaser. This can get muddy if you made large purchases for your spouse in your name or if only one name is on documents, such as a mortgage or lease.
Regardless of how the debt is split, your credit cards and banks will still expect you to pay whatever debt is in your name. Original credit card paperwork supersedes any divorce degree for financial institutions. Any credit card debt from divorce that’s in your name will be your responsibility in their eyes.
There are cases where a spouse is ordered to pay debts after divorce that are not in their name. When they don’t pay those according to the court degree, this dings your credit score and the debt collectors will still come after you. You can take your issues to court, but once the damage is done, it cannot be repaired easily.
Working Out Debt Before Divorce
You know you’re heading towards divorce and you want to resolve all the financial issues before the paperwork goes through. This will require you to work together to make sure the correct debt is in the right spouse’s name. For credit card debt before divorce, you might have to transfer funds or consolidate balances with another loan. You can talk to credit counseling services to help you through the more difficult scenarios.
When it comes to mortgages and car loans, divorce debt gets a little more complicated. You might be required to refinance a loan in just one individual’s name (the spouse that’s keeping the asset). For divorces that have already gone through the courts, a lender could allow you to simply remove one spouse’s name and replace it with the other’s. A divorce decree will be necessary, but they might still refuse. Assets can also be sold and the proceeds used to pay off the debt to prevent defaulting on your payments.
Ex-Spouse & Bankruptcy
When one of the spouses becomes overwhelmed with their divorce debts, they may choose to file for bankruptcy. Wondering if their bankruptcy can affect you? It does if any of their debts are still joined to your name. There are many different types of bankruptcy and each one has different effects on your credit score and background information.
No matter what kind of bankruptcy they choose, either you become responsible for their share of the debt or you also file for bankruptcy to avoid the additional burden. Bankruptcies remain on your credit report for 10 years — even if you’re not the one that filed initially.
Protecting Yourself for the Future
The official divorce paperwork isn’t the only bookkeeping you have to worry about when considering divorce debts. Make sure there aren’t any lines of credit open in your spouse’s name. They can continue to use the card or transfer their own debts to your accounts. Even joint accounts must be protected to ensure they don’t recuse their responsibility.
If you authorized your spouse as a user for the account, the credit card company will only hold you responsible for their transactions. Any non-payment or additional interest fees are all your liability. You can call your credit card company to remove your spouse as an authorized user quickly and easily.
There is also an opportunity here for you to protect your credit before it gets damaged. You can pay off all of your debts and then file in court to demand repayment from your former spouse. Some people prefer to pay off the debts and forget it, as going to court can be very expensive. You may never get your money back, but you also don’t have to deal with any black marks on your record.
More Support & Advice
At Cash Factory USA, we’re here to provide advice for all your financial hurdles. Whether you need assistance with your budget or you’re working through a difficult divorce, our experts are here for you. We’re also here to help you with short-term and long-term loan options that can help you get through lean times. Explore our blog today for debt and divorce advice or visit the Help Center for information about our other services.