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Debt & Divorce: 5 Things You Need to Know
A divorce is never an easy process, and one of the things many overlook when proceeding is the question of how debt is treated during divorce proceedings. Divorces are messy and debt can make them even messier. CreditGUARD breaks down what you need to know about debt and divorce. While we don’t claim to provide legal advice about divorce, we have seen many clients deal with the effects of debt and divorce.
Courts Split Debt in Divorce
In most cases, debt is split alongside assets—down the middle. If there are certain provisions like “one spouse gets the house,” then the debt may be portioned out accordingly so that one spouse doesn’t gain an unfair financial advantage.
Your Name, Your Responsibility
Once a divorce is finalized, what you’ve got is a legal agreement with your ex. You may have to work to enforce it. Speak to your attorney about an “indemnity clause.” An indemnity clause allows you to call a non-compliant spouse back to court in the event they don’t pay their share of the debt or fail to keep the agreements determined in the divorce proceedings.
That being said, if your spouse fails to pay a debt that’s still in your name, you’re on the hook for that. If your name is on a loan or bill, you’re still a responsible party. Failing to pay the debt will result in financial repercussions.
Because of the pitfalls surrounding non-compliant parties, a common practice during divorce is to refinance outstanding debts in the name of the responsible party. In this way, each former partner is then personally responsible for their own share of the debt. Failing to properly separate the debt could result in a sticky situation like the one we just mentioned.
Resolving Debt During Marriage
In an ideal situation, debt and divorce wouldn’t need to be a topic of discussion. If you can, ensure that as much debt as possible is eliminated before your divorce. This way, you and your ex will have reduced debt liability moving forward. Otherwise, the effects of a failed relationship could follow you long past filing divorce papers and affect your future in a negative way.
Recovering a Sense of Financial Stability
If you’ve been through divorce and your financial status and credit have taken a few lumps, you may be in a precarious situation, especially if you’ve gotten behind on a few bills. If your spouse included an indemnity clause in your divorce papers, you could be held responsible for these unpaid bills. The first step toward regaining your financial composure begins when you call a certified credit counselor at CreditGUARD to learn about how to better manage your debts. At CreditGUARD, we’ll help you create a budget you can stick to and help you make your monthly payments using our proven debt management program. Call CreditGUARD Today to take the next step.