Dividing up Marital Debts

When you're divorcing, you'll need to divide up your debts according to your state's divorce laws and the advice of your lawyer.

Factors to Consider

How you ultimately divide your debts will depend on how you answer the following questions:

• Who will keep what pieces of property? It's easiest for each spouse to take debts for items of property each is taking.
• How will you be dividing liquid assets like bank accounts and stocks? If you're getting more of these assets, you may end up with more of the debts.
• Will one spouse take the tax refund for the year, or will you divide it? Tax refund money can go to paying off joint debts.
• Will you be selling assets, such as vehicles and the family home, to pay debts?
• Will one spouse be paying alimony to the other spouse?
• Does one spouse make a much higher income than the other spouse?
• Will increases in rent or insurance premiums make it impossible for you to take on certain debts?

Paying Special Attention to Credit Accounts

With joint accounts, both you and your spouse are each individually responsible for any balance. No matter what the court order says, you're both ultimately responsible to the creditor for the bill getting paid (even though the court ordered your spouse to pay).

If you maintain joint credit accounts, you'll want to make regular payments throughout the divorce process, so your credit rating won't suffer.

It's a good idea to close all joint accounts or individual accounts on which your spouse was an authorized user. Your creditor may be willing to convert joint accounts into individual accounts of the spouse who will be taking responsibility for that particular debt.

The creditor may require you to reapply and requalify for credit when converting a joint account into an individual account.

Protect yourself from getting stuck with the debts your soon-to-be-ex is supposed to pay by insisting on a "hold harmless" clause in your divorce agreement. Your spouse takes responsibility for any damage done to you or to your credit rating if your spouse doesn't pay off the debts as agreed between the two of you in your divorce agreement.

Mortgage Refinancing

All home mortgage lenders will require refinancing before removing either spouse's name from the mortgage. The mortgage lender will look solely at the financial situation and debt-to-income ratios of the remortgaging spouse in determining eligibility for a new mortgage.

If your spouse is taking the family home, and taking on the responsibility for the mortgage, insist on a clause requiring him or her to refinance the mortgage to relieve you of responsibility for future payments.

You'll also want to get a "hold harmless" clause in your divorce paperwork that makes your spouse responsible for any damage done to you or to your credit rating if your spouse doesn't pay the mortgage as agreed between the two of you in your divorce agreement.

Potential Bankruptcy

If your soon-to-be-ex-spouse is contemplating bankruptcy, it's important to consult with a bankruptcy lawyer to protect yourself. You don't want to be stuck with all the debt as a result of your ex-spouse filing bankruptcy as soon as the divorce is finalized.

Generally, a person filing for bankruptcy will still be responsible to pay:

• Child Support
• Alimony
• Student Loans

Whether a person will have to live up to property and debt settlements made in divorce proceedings depends on whether he or she will be able to continue paying the debts and still be able to take care of himself or herself, dependents and business obligations. The bankruptcy court will balance the harm done to the person bankrupting against the benefit to creditors and former spouses of the person continuing to pay the debts.

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