What happens to joint debt after a divorce?

Divorcing your spouse can be a really stressful process. After going through a lot of things together, and then you realize you are not meant to remain married anymore. During the time of the couple being together, a lot has been shared together, such as assets, incomes, and debts. Apart from dealing with the fact that the marriage is ending, deciding on who in particular gets what can be a really stressful thing. It is therefore important to know that if there has been an accumulation of debt during the course of the marriage, those debts don't just go away simply because the marriage ends, but you may still be held accountable for them.

Consider going through a divorce, and then you begin to ask yourself questions about who is going to take responsibility for accumulated debts after the divorce. It is quite normal for couples to have joint finances, open joint credit card and loan accounts, or even buy a house when they're still together. This can make it difficult to determine what exactly happens to that debt after the divorce. Every single community debt and liabilities are important aspects of your divorce settlement, such debts include mortgage, car loans, credit cards, lines of credit and any other consumer loans. Mostly, the person whose signature is on the credit agreement is basically held accountable. However, in situations in which both you and your former spouse took out joint credit arrangements, both parties are responsible for any debt that is associated with them.

Who Is Responsible for Debt After Divorce?

After finalizing the divorce, the decision on how the accumulated debts during the marriage would be split up must have been made by either spouse or the court. However, on several occasions, that has not been the case. The reason being that the lenders aren't in any way restricted by the court's judgement. For situations in which your ex-partner is said to be the one to pay off a joint credit card, but with time, your ex decides not to pay. Nothing hinders the credit card holder from holding you accountable for your ex-partner's undue payment. Even after going back to settle it in court, damage has been done to your credit rating, making it difficult for you to apply for any other form of loan.

Who Is Responsible for Credit Card Debt After Divorce?

When it comes to dealing with credit card debt, most credit card companies do not quite consider divorce decrees. Therefore, it might have no effect on whether you and your spouse decide to split the CC debt in any manner. If one person is the owner of the card and the other is an authorized user, both individuals are responsible for the account.

Several factors determine how credit card debt is taken care of in a divorce, such as where you live.

There are two ways in which states handle debts from marriage; them can be seen as either common law property or community property. For states that make use of common law property, the law only holds the spouse that incurred the debts responsible for the repayment. Unlike community property, which holds both parties responsible for the debts incurred during their marriage, various States make use of common law property and can be classified in 3 ways:

● The court holds you responsible for credit card debts that are solely in your name.

● The court holds both spouses responsible for joint credit card debt that is in both parties' names.

● The court holds you accountable for credit card debt that you signed together with your spouse, even if it is not jointly owned.

While the community property works this way: -

● The court holds both you and your spouse responsible for any credit card debt in your name, either jointly or individually.

● The court holds both parties responsible for the credit card debt they consign.

● The court holds you accountable for credit card debt incurred during the course of the marriage.

Who Is Responsible for Mortgage Debt?

A mortgage loan is referred to an agreement between a borrower and a mortgage lender in order to buy or refinance a house without making payment for the house at once. This type of arrangement enables the mortgage lender to have a legal right over the building property when there is a bridge in the agreement by not paying the borrowed money along with the interest.

In normal circumstances, spouses are expected to sell the house or refinance their mortgage to make it the home of one person. Then the other person is responsible for the repayment of the mortgage every month. However, it doesn't always work that way, as one spouse might want to remain in the house, thereby causing serious problems in between. Also, whatever changes that are made concerning the mortgage, including a refinance into either party's name, needs to be reviewed and approved by the mortgage lender.

How to Safeguard Your Money During Divorce

For those who are faced with divorce and are worried that their spouse is responsible for the debts incurred during the course of their marriage, it is therefore important to find a way to keep your money during the divorce process. Spouses tend to create joint accounts while married, and the idea of joining all their finances can have a negative effect when it comes to divorce.

In order to keep your finances during the divorce process, it is advisable to desist from using a joint credit card, as this would make it easier to distinguish between who exactly is in debt and who is not without affecting the other.

Ensure that your name and signature are not linked to any joint credit cards and remove yourself as an account cosigner. For situations in which the credit card company requires you to attach two sources of income to the account, endeavor to monitor and check the financial activities going on in the account to show exactly who is responsible for any debt incurred.

However, in order not to be at the crossroads of repaying debts because of a divorce, there are other alternatives you can consider, one of which is debt settlement.

Now, let's take a look at what debt settlement means;

Debt Settlement

Debt settlement can be defined as a situation in which your debt is settled at a lesser amount compared to the amount you originally owe, with the expectation of completing the amount settled for in full. It is also referred to as debt relief, the settlement process is handled by a third-party company, who negotiates with the lender in order to come to a common ground. In some cases, these lenders do not seem to accept debt settlement, and there are circumstances in which it causes more harm to the borrower in the long run.

After an agreement has been reached, you are expected to start making deposits of a particular amount of money to the company processing the negotiations. However, despite the fact that debt settlement is a great way of settling your debt, it also has some risk involved, such as the payment of hefty fees and taking about 15 to 20 percent of the debt to be resolved. Also, damage is done to your credit score, as going through the process of settlement can affect your credit score negatively.

Conclusion

Divorce can be stressful on its own, but now having to deal with debt can also be quite frustrating. It is therefore important to work together to pay off any form of joint debt before divorce.

Sources – Become Debt Free