It is routinely stated that 50% of marriages end in divorce. No matter how exaggerated or undervalued the statistics may be, the truth is that many marriages end. Part of the split with your spouse means that you are caring for the debt that was incurred during the divorce. In a perfect world, they both take responsibility for the debts they have created and with those debts in their names. Unfortunately, that ideal state may be unattainable.
Legal liability for debt
In a state of community property, the debt created during the marriage need not be divided according to which spouse incurred the debt. Instead, you are both equally responsible for the debts that only one spouse has created without even knowing the other spouse.
In other states, an equitable distribution of states, the court will determine the liability of the debt based on the person who incurred the debt. Usually the debt belongs to the ex-spouse whose name is on it. It would leave you on the hook for your debt and your spouse on the hook for them.
No matter how the court splits the debt, banks still expect you to pay the debt in your name. The original credit card agreement or credit agreement replaces the divorce decree, at least in the eyes of the bank. Debt splitting can create a problem when the spouse is instructed to make payments on debt that is not in their name or jointly maintained.
Let’s say your ex is responsible for paying on the credit card that is in your name. Your credit is affected when your ex-spouse does not withhold payments on accounts with your name, even joint accounts. You can bring legal action against a spouse who fails to comply with a court order to make payments on the account.
However, by the time you get to court, your credit may have already been destroyed.
Take advantage of the debt issuer before the divorce
Try to take on debt on behalf of the spouse responsible before the debt ends. This will not be easy and requires both to work together, but hard work will be necessary to get you off the hooks for debt that is not yours. For credit card debt, this can mean shifting your balance to other credit cards or consolidating your balance with another credit.
Big loans such as mortgages and car loans are more difficult and often require refinancing of the loan only to the name of one person or the person holding the property. If the divorce is already completed, the lender may allow you to remove your name from the loan and replace it with your ex-spouse’s name. You may need to show them a divorce decision stating that your ex-spouse is responsible for paying the mortgage. If that does not work, contact the lawyer about the judge having the means of sale and the means that will be used to repay the loan to prevent default.
Bankruptcy of your ex-spouse could affect you
Your ex-spouse may decide to file for bankruptcy if they are unable to continue paying their debt and other financial obligations.
However, their bankruptcy does not protect you unless you file. In fact, things could get worse for you if your former files are bankrupt
When an ex-spouse goes bankrupt to eliminate their joint debts, those debts are not cleared in bankruptcy court. Instead, bankruptcy erases that liability for debt. The creditor will execute the remaining debtor, the one who has not filed bankruptcy, for the full amount of the debt. Sometimes, bankruptcy could end up wrong on your credit report even though you weren’t the one to file for bankruptcy.
Protect Yourself From Future Debt
Be careful to leave joint accounts open after a divorce or even lead to it. A credit card or line or credit that is left open is dangerous. Your ex-spouse can transfer balances from their accounts to the accounts you hold together.
Or, they can strike a balance and leave you paying to buy.
In the case of authorized accounts, the creditor has only the principal account holder responsible for the debt. However, non-payment to the account can affect the credit history of the authorized user, since the account is also listed on their credit report. A simple phone call can resolve authorized user issues.
To protect your credit, you can choose to pay off your debts yourself and go back to court for your ex-spouse to pay you. This may be expensive, but it is an alternative to losing good credit. Understand that if you pay off those debts, you will never get money from your ex-spouse, even with a court order. Alternatively, you can file for bankruptcy, but consider carefully because bankruptcy remains on your credit report for 10 years.