How To Deal With Debt Division In Divorce

While most divorcing couples consider asset division very important, the issue of debt division should not be overlooked too. This is because poor debt division may leave you in a worse financial situation than you started with. Here are three things you should know concerning debt division during divorce.

Community or Equitable Distribution Laws Apply

In community property states, the debts you incurred during your marriage will be treated as community debts. Community debt is likely to be divided equally between the two of you. This will be the case even for the debts that are only in one of your names or even the debts that your spouse took and used without your knowledge. In an equitable distribution state, however, each of you is responsible for the debts in their name and both of you are responsible for the debts in both of your names.

Consider an example where you took a loan to take your kids to private school, and your partner also took a loan (without your knowledge) to buy an expensive motorbike. In a community distribution state, both of the debts may be lumped together, and you may be equally held responsible for paying them off. In an equitable distribution state, however, both of you will pay the private school loan while your partner will be solely on the hook for their motorbike loan.

The Rights of the Creditors Rule

Note that the banks or lenders to which you owe money won't care much about your divorce decree or debt-payment agreement; all they care about is getting their money. Therefore, if your spouse is supposed to pay a debt in your name, and they default, the bank will come after you and not your spouse. It may seem unfair, but there is a legal justification for this; the main aim here is to protect the lenders' rights so that they don't lose money because of your divorce.

Your Spouse's Bankruptcy May Be Bad for You

If your ex-partner is overwhelmed with the debt and ends up filing for bankruptcy, then don't think that the bankruptcy will help you. The bankruptcy discharge will only wipe out your spouse's debt obligations, but not the actual debt as long as your name was also on the debt. In such a case, your partner's bankruptcy will make things even worse for you because you may be required to pay the entire debt.

As usual, you can divide your own debts between yourself or let the court adjudicate the matter if you are unable to reach an agreement. Whatever you end up doing, you should get the help of an attorney to help protect your right and ensure fairness. For more information, contact a law office like The VK Law Firm.


Share