The process of dissolving a relationship and separating assets in a divorce can be very stressful and difficult. This is compounded when the spouses have outstanding debts to divide as well. There are various forms of debt that are common in the division of a marital estate.
Credit Card Debt
First, credit card debt that is acquired either jointly with both parties signing on a credit account or individually by one spouse is subject to division. Credit card debt is unsecured by any assets and it is preferable for the party who is the primary debtor on the account, or the spouse who is contractually obligated to pay the debt to the credit card company, to be awarded the debt in the parties’ divorce. This is because a spouse who is awarded the credit card debt of the other spouse has little to no incentive to pay that debt, other than to avoid the possibility of a future lawsuit to enforce the provisions of the Divorce Decree. Hypothetically, a husband could be awarded two credit card debts, one in the wife’s name with a balance of $1,000 with 7% interest and the other in his name with a balance of $3,000 with 10% interest. The husband would be more inclined to pay down the debt in his own name, with the higher interest rate ahead of the card that his ex-wife is contractually obligated to pay. If he makes only the minimum payments or less on his ex-wife’s card, her credit rating is negatively affected, not his.
Mortgages are another form of debt that are divisible in a divorce. Often, the party that is awarded the property would assume the mortgage on that property, if they could afford it. If both parties are listed on the mortgage, then the party who is not awarded the property signs a Special Warranty Deed assigning their interest in the property to the other spouse. The spouse assuming the mortgage then executes a Deed of Trust to Secure Assumption, promising to pay the mortgage each month and keep it current. If the spouse who is awarded the house does not keep the mortgage current, the spouse who is the beneficiary listed in the Deed of Trust to Secure Assumption (the spouse that was not awarded the property) can pay the outstanding mortgage balance and foreclose on the property. If neither party is able to afford the mortgage, then the parties can agree or the Court can order the sale of the property. After the sale, the balance of the mortgage is paid and the equity is awarded by percentage to the parties or one spouse individually.
Debts for medical services is another common debt that are considered in a divorce. The community estate is liable for the necessaries of the spouses. If a spouse has no health insurance or is under insured and that spouse gets severely ill or injured, medical expenses can be overwhelming and the community estate is liable for the debt. Options for division or payment of this debt should be discussed with financial and legal counsel, as spouses may determine that bankruptcy is a viable option. Bankruptcy has the consequence of potentially delaying the divorce, as the state proceeding towards the divorce is stayed until the federal bankruptcy proceeding is either completed or the stay is lifted by Court order.
Secured debt, like notes on a motor vehicle, usually are the responsibility of the party that is awarded the property securing the note. Ideally, the party who has possession of the property (i.e., a car) will be responsible for the monthly payment. A problem arises when one spouse has the loan in their name and the property (the car) is in possession of the other spouse. In such an instance, the party in possession of the car should refinance the note into their name and keep possession of the car. If they are unable to do so, then provisions in the Decree should be made that permit the spouse who has the loan in their name to repossess the vehicle in the event that the party in possession of the vehicle fails to pay the note timely.
Hammerle Finley Can Help
It is optimal for divorce decrees to apportion debts in such a way that avoids future litigation. The more work that is done during the divorce process to discover outstanding liabilities will better ensure this outcome. Seek assistance from an attorney who has extensive experience in handling division of property and debts in a divorce situation. The attorneys at Hammerle Finley Law Firm are available to assist you in the event that a lawsuit is needed to enforce the provisions of a Divorce Decree to ensure marital debts are paid. Schedule a consultation in person, via Zoom, or via telephone to discuss your family law concerns today.