Dividing Debt During Divorce
Separation and divorce are complicated legal matters that vary from state to state. In some cases, dividing debt you incurred before separation is your individual responsibility even if it was incurred on a joint account. In others, joint accounts can be problematic. If your name is on a credit card, creditors may not consider separation or divorce when deciding to pursue collection action against you.
Credit Card Debt
Joint Credit Card Debt
In most states, credit card debt from a joint credit card account is shared equally between spouses. This applies even if one spouse used the card more than the other, or made monthly payments. Keep in mind that a judge may decide that one spouse should pay more than the other.
Cosigned Credit Card Accounts
A cosigner may be required by a lender to co-sign an account with another person. When this happens, the cosigner agrees to be responsible for the debt if the primary user cannot pay. The debt becomes a balance on both accounts and is treated as community property in community states. However, judges have more discretion in common-law states. Cosigners can request to be removed from this type of account by asking the primary user to remove them.
Mortgage Debt
If a House Isn’t in Both Names
In most cases, if one person owns the house and the other does not, the court will consider the couple’s financial situation, why it’s in one person’s name, and more when deciding who will be responsible for the mortgage.
Best Option: Sell the House and Split the Money
When there is a shared mortgage on a property, it is usually in the best interest to sell the property and split the proceeds. The sale will cover your financial obligations and enable both of you to begin anew. This also allows for an easier transition for the children.
Buy Out Your Spouse or Vice Versa
If one party wants to keep the home and the other agrees, contact the mortgage company to remove the uninterested party’s name from the loan agreement. If the company doesn’t want to remove it, refinance without that name on there.
Auto Loan Debt
When these loans are in both names, they can be a real hassle in a divorce. In the vast majority of cases, one party will hold onto the car and make payments.
However, in the instance of a spouse not paying, if the other party’s name is on the loan, they will be responsible for default, late fees, or collection costs.
Just like with a home’s title and mortgage, the title of the car and the auto loan are separate things. To transfer ownership, remove the other name from the title and take it to your state’s Department of Motor Vehicles. Have both parties sign at the DMV.
Don’t forget that it is the responsibility of the title holder to keep the car’s registration up to date and to deal with any violations. If you’re not keeping the car, you don’t want to be liable.
Medical Debt
Generally, the court will consider whether the couple was living together (or if there was a legal separation) when the medical debt was incurred. Debt from an emergency procedure or other necessary treatment is likely to be considered differently than elective surgery or unnecessary procedures.
The judge will determine a final figure based on the facts of your case. This includes medical debt acquired during a marriage in community property states, where each spouse is entitled to half of all marital assets and debts upon divorce. In that case, you’ll need Thompson Law for your legal needs.