Divorce can be one of the most stressful times in a person’s life. Getting to the finish line may seem like the most important goal. Many people may think that the divorce will end after a court finalizes it, but there are still many factors that you will need to continue working on after the divorce. These factors include co-parenting, recovering from the emotional turmoil, and dealing with joint debts and loans after the divorce. Knowing what to do with joint debts and loans post-divorce depends on the type of debt and your unique circumstances.
Creditors Are Not Bound by Divorce Decrees
Most of us carry credit card debt, vehicle loans, or mortgages. Those who are seeking a divorce are no exception. Many divorced couples will have to deal with shared debt as part of the divorce process. If you and your ex-spouse shared the debt you acquired during the marriage, you would likely have debt obligations after the divorce. Texas courts divide marital debt between the parties.
When a court specifies which spouse is responsible for paying off which type of debt in the divorce decree, creditors are not bound to divorce decrees. In other words, a court could tell one spouse he is obligated to pay off a specific credit card. However, credit companies can still pursue payment from the other spouse. Even if your divorce settlement says you were not responsible for a joint account, a lender can still go after you when your ex-spouse misses a payment. The resulting late payments and other derogatory marks could hurt your credit score, even if you are not responsible for making payments post-divorce.
The Type of Joint Debt Will Impact Your Strategy
When negotiating a divorce settlement, it’s important to distinguish between separate and marital debt. Marital debts will be divided up. Debts associated with an asset, such as a car loan, typically go to the spouse that ends up keeping the asset. The ideal scenario is usually for the spouse to keep the joint loan to refinance or remove the other spouse from the loan. Doing so can be difficult, however. Developing a strategy for joint debts and loans post-divorce depends on what type of asset is involved.
Joint Mortgages After a Divorce
If you and your ex-spouse own a home together, you may not qualify for a mortgage refinance based on one person’s income. Lenders may allow one party to assume the remainder of the mortgage without refinancing, but that is not always an option. Getting approval for the list option will still depend on your credit score. When neither of these options is feasible, the couple may decide to sell the family home and divide any resulting assets or liabilities between themselves.
Another option is to keep both parties on the mortgage while the person who lives in the home continues to make monthly payments. In this scenario, both spouses remain legally responsible for the mortgage debt. A person not living in the family home could have difficulty qualifying for a mortgage. However, when the divorce settlement states that the mortgage is the other spouse’s responsibility, this could help the spouse who is not living in the family home.
Unsecured Debt, Including Credit Card Debt
Unsecured debt, including credit card debt, is one of the most common types of debt divorced couples must contend with. Generally, only the debt from joint accounts will be divided up. In community property States, all debt could be split down the middle regardless of whose name is on the account and what was purchased. There are exceptions to this rule, however.
For example, if one spouse uses a credit card for purchases that did not benefit the marriage, that could be ruled his or her responsibility. When dealing with unsecured debt after a divorce, you may want to use money in your shared savings or proceeds from the sale of your home to pay off unsecured marital debts. Another strategy is to transfer the debt from credit cards to non-joint accounts. Doing so gives each spouse full responsibility for a portion of the debt.
Practical Tips for Managing Debt After a Divorce
After your divorce, you should take stock of your financial situation. You will probably have new bank accounts in your name, and you may want to make a plan to ensure that all of your bills are paid on time. Working with a financial advisor or accountant can help you create an effective strategy. Some practical tips for managing that after a divorce include the following:
- Setting up automatic payments or creating calendar reminders to make sure your bills are paid on time
- Developing a debt repayment strategy that works for your needs and goals, such as the snowball method or the Avalanche method
- Selling vehicles or property that are in your and your ex-spouse’s names to clear the debt
- Removing your name from any outstanding debts that are in your name but that your ex-spouse is responsible for paying
- Paying off balances so that you can buy your spouse out of the debt
Staying on top of repayment is crucial. If you miss a payment, it could result in returning to court, which will cost you more money and could negatively affect your credit score. If your spouse is not paying his or her share of the post-divorce debt, it can negatively affect your credit. Reaching out to a divorce attorney can help you understand your options for mitigating the situation and enforcing your ex-spouse’s obligations.
Discuss Your Case with an Experienced Attorney
Dealing with that after a divorce can be challenging. The best option is to negotiate a divorce settlement that addresses all of your marital assets and debts. At Divorce Concierge, we help clients pursue uncontested divorces for an affordable flat rate fee. We can help you negotiate a divorce settlement that effectively protects you and addresses all your assets and debts. Contact us today to schedule your free case evaluation.