Dividing Debt in a Divorce

Divorce is not just the end of a marriage; it also involves the division of assets and liabilities, including debt. Splitting debt in a divorce can be complex and emotionally charged. However, it's essential to handle this aspect of the divorce process carefully to protect your financial well-being. In this blog post, we'll discuss the basic steps to splitting debt in a divorce and the liability if debt is not retitled correctly.

Steps to Splitting Debt

Identify and List All Debts:
- Create a comprehensive list of all marital debts. This includes credit card balances, loans, mortgages, and any other financial obligations held individually or jointly.
- Determine which debts are joint and which are individual. Joint debts are typically shared equally, while individual debts remain the responsibility of the person who incurred them.
Negotiate and Reach Agreements:
- Work with your spouse and your attorneys or mediators to negotiate a fair and equitable division of debt. You may agree to divide debts equally, assign specific debts to each spouse, or use other arrangements that suit your situation.
- Ensure the division and agreement for each debt is specifically listed in the divorce decree.
Retitle Accounts to Match Agreement:
- Pay off or transfer the balances as agreed upon in your divorce settlement.
- Ensure that joint debts are retitled into the name of the spouse who is responsible for them. Sometimes, joint debt such as credit cards cannot be retitled to an individual name, but must be closed out.
- With joint mortgage loans, it may not always be possible for one person to assume the debt. Consult with the lender or a financial professional to discuss your options, as well as the advantages and disadvantages to each.

What Happens if our Debt Is Not Retitled Correctly?

If joint debts are not retitled correctly during divorce, both spouses remain legally responsible for the debt. This means that if your ex-spouse fails to make payments on a jointly held debt or files for bankruptcy, it can negatively impact your credit score, and creditors can pursue you for repayment.

To avoid this liability:

Ensure that joint debts are transferred into the name of the spouse responsible for them.
Close or refinance joint accounts when necessary to remove your name as a co-borrower.

Splitting debt in a divorce requires careful consideration, negotiation, and attention to detail. Avoiding common mistakes and correctly retitling debts is crucial to protect your financial future. Seek professional guidance to navigate the complexities of debt division, ensuring a fair and equitable resolution that aligns with your financial goals and obligations. Remember, divorce is challenging, but with the right approach, you can emerge with your financial health intact.