Until Debt Do Us Part - Link Financial Advisory

Until Debt Do Us Part

What steps can you take to help transition the obligation of debt best in a divorce situation?

When saying “I do,” to any relationship, seldom is the thought of ending the relationship discussed or the division of joint debt. For couples that combine both assets and liabilities, a split signals the dilemma of dividing both. About half of all marriages in the U.S. end, according to the American Psychological Association, making debt a significant hindrance to financial security for some divorcees.

In a perfect world, the spouse that acquired the debt would pay if off; however, that is not always the case. Creditors will hold both spouses listed on the note or agreement responsible, regardless of the way the court determines the debt is to divide.

When it comes to a bank loan or credit card debt, the original agreement will likely override any decree. If the spouse not on the agreement made the payments for the other who is the legal debtor, the paying spouse isn’t obligated by the bank or credit card company to continue payments, despite any decree.

What steps can you take to help transition the obligation of debt best in a divorce situation?

Work Out a Debt Repayment Plan Before the Divorce – It’s not always easy, but working together to get debt each of you is responsible for paid off is essential. If you have joint liability, you both have an obligation for it and need to work out a plan that is fair to both of you.

Transfer Balances or Consolidate Debt – You may need to open new credit card accounts or take out a loan to transfer debt into your name only. The only way to get your spouse’s name (or yours) removed from an account with a balance is to either pay it off or transfer the debt. Seldom will a credit card company or a bank remove someone from a debt obligation, leaving it in the other’s name. The creditor has requirements on removing someone from an account, so consulting them is your best resource.

Individually Pay off Mutual Debt Before the Divorce – You may choose to pay off the debt and then seek repayment from your spouse during the divorce negotiations. Protecting yourself from future liability during the time leading up to the divorce is important, especially if you’re concerned about your spouse acquiring more debt.

In home and auto loans, the loan titling determines the responsibility or obligation. To remove a spouse from payment responsibility many times requires a new loan, paying off the joint loan, or liquidating the asset. If one or both spouses aren’t creditworthy on their own, or if the liquidation of the asset isn’t enough to pay off the loan, this may impact the credit of both.

Your credit score and credit history are yours alone but can substantially be impacted by another person if you have joint debt. Divorce can be devastating, both emotionally and financially. Consulting your creditor is the first step in resolving your joint debt.

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