Understanding how your divorce impacts your debts

| Oct 21, 2020 | Family Law |

When getting a divorce, spouses must figure out how to divide up their shared assets. At the same time, they must also figure out how to divide up the responsibility for any shared debts. 

Some couples aim to repay all joint debt prior to completing their divorce. This option may not always present itself, requiring the clear identification for repayment responsibility to be determined. Understanding how this works is important for all divorcing spouses. 

Debt liability and the divorce decree

A divorce decree outlines the agreements made during the negotiation process. This includes detailing which person must repay which debts. However, Bankrate explains that the terms of the divorce decree may not matter much to a creditor. 

A creditor looks primarily at the name or names listed on an account to determine financial responsibility. Therefore, when a couple keeps both spouse’s names on an account, the creditor may consider both people liable for the debt regardless of what their divorce decree indicates. 

A former spouse’s failure to repay a debt

According to U.S. News and World Report, one spouse might receive collection calls from a creditor if the ex-spouse fails to keep up with required debt payments per their divorce agreement. Negative marks on credit reports may be made against both parties as well. 

This may occur for a variety of debts including credit card bills, home loans, automobile loans and more. If a couple cannot pay off all joint debt before their divorce completes, it may help to have a person required to pay a debt transfer that debt to an account in his or her name only.