Naturally, in a divorce, the parties are often concerned with the division of assets, including money, retirement accounts, and real and personal property. However, what some clients (and unfortunately, even some attorneys) fail to pay special attention to is the division of marital debts. Plenty of married couples have debt in joint names, and of course, for various reasons, a spouse may get a credit card or auto loan in his/her name only, on behalf of and for the benefit of the other spouse. In many cases, like assets, the division of debts is not easily split.
The judge has the power to order your spouse to pay a certain debt in your divorce decree, but the court doesn’t technically have the power to take your name off the debt. If your name is on it, you’re liable to pay it, and your credit will suffer if you don’t. If your spouse violates the debt provision of the divorce decree and doesn’t pay, your attorney can file a Motion for Contempt, but in the creditor’s eyes, you are still liable. An unpaid creditor/lender can and will legally report bad credit on all parties to the loan, including you. In fact, an unpaid creditor/lender can legally sue all parties to the loan, including you, despite a divorce decree in your favor. This is why it’s so important to ensure the loans are either refinanced out of your name or sold as part of the divorce.
Here are some all-too-familiar and unfortunate scenarios:
Example #1: Your ex-wife keeps the car that you both signed for and is ordered to pay the debt, but she doesn’t make the payments. Your credit will plummet, the car will get repossessed, and you both will get sued for the balance.
Example #2: Let’s say your ex-husband is awarded the Ford F-150 that you, out of love and loyalty during the marriage, took out a loan for in your name only. The divorce agreement states that he’ll assume the debt on the truck, but because his credit is already terrible, you agree to let him pay you directly every month, while you make payments directly to the lender. Unfortunately, he doesn’t pay you a dime, and you can’t afford to make his truck payment and your car payment on your own. However, you know how much he loves that truck, and surely, he wouldn’t let it get repossessed. Surprise! The truck is repossessed, and your credit further tanks as a result.
Example #3 You quitclaim deed your ownership in the family home to your ex-wife as part of the divorce settlement, which is certainly one of the faster and easier ways to give up ownership in your home. You can probably guess by now that if she doesn’t make the payments on time, your credit will suffer, and if she gets foreclosed on, even with the quitclaim deed, you’re getting foreclosed on, too. Even if she pays the mortgage perfectly every month, you’ll likely have trouble buying the next home because the home has not been refinanced out of your name, and you simply have too much debt.
Very few divorces are “simple,” but thankfully, there are steps you can take to prevent these common scenarios from happening. If you’re certain that your marriage is irretrievable and irreconcilable, then you need to walk away completely – and that means emotionally, physically, and financially. It means making sure all debts are refinanced out of your name or forcing the sale of those items. Even though it’s painful now, it’s best to leave no strings attached and to have a complete, clean break. The last thing you want to do is leave your marriage, not only emotionally broken, but financially broken as well. A gift affidavit for the car and a quitclaim deed for the house is not enough. Sell the property, get rid of the excess debt, and/or refinance it as part of your divorce.
by Jacy Carpenter. Jacy is an attorney with Gregory Varner and Associates, licensed in Missouri and Alabama, & a member of the Illinois Air National Guard. Her educational background includes a B.A. in Psychology from Southeastern Louisiana University & a J.D. from Southern Illinois University School of Law. You can reach her at firstname.lastname@example.org or 888-378-0246.