And How to Protect Yourself From Financial Fallout
Dividing assets in a divorce tends to get a lot of attention but what about dividing the debts? Credit cards, loans, and mortgages do not just disappear when the marriage ends. In fact, if you are not careful, marital debt can follow you long after your divorce is finalized[EH1] [NH2] .
Here are five important considerations for marital debt during divorce:
1. Your Divorce Agreement or Order is Only with Your Spouse
A divorce decree may assign debt responsibility between you and your spouse, but that is between you and the court, not the lender. If your name is still on a tax obligation, joint credit card, or loan, you are still legally liable for that debt even if the decree says your former spouse is supposed to pay it.
2. Do Not Overlook Hidden or Joint Debts
It is not uncommon for one spouse to be unaware of certain credit card balances or loans. Debts in only one spouse’s name may still be considered marital if they were incurred during the marriage.
3. Focus on Net Worth
Many people want to keep the house or car without realizing they are also taking on a large chunk of the associated debt. Winning an asset can actually be a financial setback if the corresponding debt outweighs the value, or if the debt is one you will struggle to pay.
4. Freeze or Monitor Joint Accounts
Some people discover too late that their spouse ran up credit cards or took out loans during the separation period. If accounts remain open, you may be held responsible for new charges made before the divorce is finalized. Discuss with an attorney the possibility of freezing or closing joint accounts early in the divorce process or monitor them throughout the process.
5. Plan for Tax Consequences
Certain types of debt settlement or division can carry tax implications, especially if there is debt forgiveness or transfer of certain liabilities. You should always consider discussing your Agreement or Court Order with a CPA or tax professional.
Debt is just as important as assets when it comes to protecting your financial future. A little extra diligence during the divorce process can prevent a lot of heartache down the line. If you’re unsure how to handle marital debt, don’t go it alone. A family law attorney with financial insight can help you make smart, informed decisions.