Divorce and Debt – 7 Things You Need to Know

Divorce is challenging for a variety of reasons. The legal aspect of divorce is primarily concentrated on the division of assets and debts. Divorce isn’t just emotionally costly. It can be financially expensive, too.

Learn the basics of debt and divorce so you don’t get caught off-guard in challenging circumstances:

1. The rules vary from state to state. In some states, the name on the debt is the one responsible. In others, the debts are held jointly, regardless of whose name is on the account. Consult a divorce attorney to learn the laws in your state.
2. Joint cards equal joint debt. If both names are on the card, both parties are usually equally responsible. It doesn’t matter if you never used the card and your spouse charged $10,000. 

• After the separation, any additional credit card purchases or cash advances are the sole responsibility of the person who initiated them. The date of separation is considered to have occurred per the laws of your state of residence.
  

3. Cancel any joint credit cards during the divorce process. The last thing you want to deal with is your soon-to-be ex charging up the card or taking out a significant cash advance. Before canceling any card, be sure you have enough money or other credit to live on.
4. The courts don’t affect creditors. If your name is on an account, it doesn’t matter to your creditors what the court decided. You are still liable if your name is on a credit card, car loan, mortgage, or other debt. Your ex’s failure to make the loan payment can negatively affect your credit. 

• You can also still be sued for the debt. If your ex is responsible for the debt, you can then sue your ex for not honoring the agreement. It can be a big mess, but going back to court is always an option.

5. Pay off debts or convert joint accounts to individual accounts when possible. This will make the divorce process cleaner and more accessible. If you can’t do this, monitor your joint accounts and keep careful records.
6. The bank is unlikely to remove either name from the mortgage. The more people responsible for the mortgage payment, the happier your banker is. It will be necessary to either sell the home or refinance it to remove either party from the loan.

• This is commonly the most significant debt a married couple will have and often creates the most drama during a divorce. The parent with physical custody of the children will often take possession of the home.
• If one of you has sufficient income and credit and enough equity in the home, refinancing is a possible solution to this commonly sticky situation.
• In most cases, selling the property is the easiest way to relieve mortgage debt. Both parties are free of debt and responsible for their financial future.

7. Beware of signing a quitclaim deed. This deed does precisely what it says. It allows one party to give up all claims to a piece of real estate. It does not absolve one from ensuring the mortgage gets paid. You’ll lose any equity in the property and any use of the property. But you still have all the responsibility for the mortgage.

Divorce is challenging in many ways, including financially. The handling of debts during the divorce process depends on the state in which you reside. A reasonable divorce attorney can help to ensure that you emerge from the divorce in the best possible financial situation.

There are very few resources for the business owner going through a divorce. At a top level, I recommend Nolo’s Divorce & Money by Violet Woodhouse. This topic may be my next book, given the challenges faced and the absence of information available.