How Courts Divide Divorce Debt Varies From State to State

When a couple decides to divorce, the courts split up both their assets and their debts. Some people overlook the importance of dividing the debt, but it is an essential factor of a couple’s net worth, and courts take great care to do so fairly. The court will decide which party is responsible for each bill. The court will attempt to balance the debts and assets to ensure the parties receive a fair settlement, meaning that if one spouse is given less debt, they may also receive fewer assets in the deal.

It is important to know which laws will control the division of your debts upon divorce. Some states operate under community property laws, which means that, with some exceptions, all property (both real and personal) acquired during the marriage is presumed to be community property, and both spouses have an equal interest in it, regardless of legal title. 

 

Complex issues can arise if a separate property (property acquired prior to the marriage) is used to buy a property or pay down a mortgage. Laws and formulas used to determine and divide community property during divorce vary from state to state, making it very important to have attorney representation in the matter. Moreover, proper estate planning during the marriage can help to avoid these difficult problems from arising.

Other states operate under equitable division laws. Equitable division does not mean that spouses will necessarily receive half of everything. Rather, the court will determine what is a fair, reasonable, and equitable division of debts and assets, taking into account what each spouse brought into the marriage. Regardless of your state’s laws, your settlement may be governed by a prenuptial agreement if you signed one. Because of the complexities of the laws governing divorce, it is especially important to consult with an attorney when determining what to do with divorce debt.

Settling the Debt After Your Divorce

Even after the court divides the assets and debts, your financial struggles may not be over. For instance, were you to file for bankruptcy, you would not be excused from making spousal support (alimony) or child support payments. Indeed, familial support remains a top priority in bankruptcy proceedings. Likewise, you may remain liable on any joint accounts, even after divorce. This means that if your spouse misses a payment on a debt that has been assigned to them, the creditor may come after you.

Steps You Can Take to Avoid Divorce Debt Complications From Arising

Divorce becomes more complicated when debt is involved, so it is always a good idea to work  with an estate-planning attorney during your marriage who can put safeguards in place in the event that a divorce does happen. Likewise, it is important that both spouses have equal access to any financial information during the marriage and are involved in making key financial decisions.

Debt Settlement Resolves Joint Liabilities Without Long-Term Damage

Divorce complicates everything, especially your finances. You and your former spouse likely shared a mortgage, a car loan, and several credit card accounts. A divorce decree might say your ex is responsible for a certain payment, but that legal order does not change your contract with the lender. If your former spouse fails to pay a joint debt, the creditor can legally pursue you for the full amount. This is a common and stressful situation, particularly in community property states where assets and debts acquired during the marriage are often considered jointly owned.

Our job as debt lawyers is to deal with these situations directly. We use a strategy called debt settlement to talk with your creditors. The goal is to negotiate a final payment that is less than the total balance you owe. This can be a powerful tool for unsecured debt, such as credit card debt or personal loans taken out during the marriage. We look to settle the account for good, giving you a fresh financial start.

Debt Consolidation Offers Often Just Rearrange Your Financial Problems

After a separation, you might see a lot of ads for debt consolidation loans. The idea sounds simple: you take out one new, large loan to pay off all your other debts. You’re left with a single monthly payment, which can seem easier to manage. But you have not reduced your debt. You’ve just moved it. Sometimes, these loans come with high interest rates or fees, and you could end up paying more over time. Some plans suggest refinancing your home to pay off a credit card or a student loan, but that attaches your unsecured debt to your house, which is risky.

There are other ways to handle your finances. Debt settlement is an alternative where we work to lower the actual amount of debt you have to pay back. We can sit down with you, review what you owe, and develop a plan that works for you. This approach is about reducing your debt burden, not just shifting it. A lawyer can show you how the law applies to your specific financial situation.

Bankruptcy Affects Your Credit for Years, and Our Lawyers Will Look At Every Possible Route to Help You Avoid It

When debts pile up after a divorce, some people feel that filing for bankruptcy is their only choice. It’s a legal process that can discharge many types of debt, but it leaves a significant mark on your credit report for up to ten years. A bankruptcy can make it difficult to get a loan, a mortgage, or even certain jobs. Issues like alimony, child custody arrangements, and the division of property can also complicate the process. It’s a path you should only take when all other avenues have been explored.

Our attorneys first determine if bankruptcy can be avoided. We review your entire financial picture — your income, your assets, and every debt from your mortgage to your student loan. Often, debt settlement can be used to negotiate with creditors and prevent a lawsuit, allowing you to resolve your accounts without needing to file for bankruptcy. It can protect your assets and your financial future. We want you to know your debt and your options before making such a big decision.

Start Protecting Your Finances by Taking Some Key Steps to Separate Your Financial Life From Your Former Spouse

You need to financially untangle yourself from your ex-spouse. The first step is to close any joint credit card accounts. If you cannot close an account, work to get your name removed from it. This prevents new debt from being charged in your name. You also need a clear picture of what you owe. Get a free copy of your credit report from all three bureaus and check it carefully. Look for credit report errors or accounts you don’t recognize and dispute them in writing.

Create a new budget based on your new reality. You’re now working with a single income, which may or may not be supplemented by alimony. You must account for every expense. For larger shared debts like a mortgage, you need a solid legal agreement on who is responsible for the payment or a plan for refinancing the property in one name. Creating this separation is a vital step in moving on from the marriage and establishing your own financial stability.