In a divorce, there is often a lot of focus on distributing assets. What many people overlook, however, is the distribution of debt. Debt does not simply go away when a couple divorces. It needs to be split fairly between the two parties.
Handling marital debt is not an easy task, especially when there are multiple credit cards or loans involved. Even when the debt is assigned to one party, there is no guarantee that the specific partner will pay it. This means that both spouses could still end up responsible for all the debt, which can appear to be unfair.
There are many types of debt that one can encounter in a divorce. Not only are there credit card debt, medical bills, auto loans, and mortgages, but lawyers’ fees, as well. How does the court decide to divide these debts? Our New York divorce attorney speaks further on this.
How to Handle Marital Debt
The best way to handle marital debt is to leave a marriage with no joint debt at all. However, this is easier said than done. Many couples have vehicles and homes that they own jointly, and it can take many years to pay off these loans. If there is any way that you can pay off these debts while married, it will save you a ton of stress when it comes to filing for divorce. Using a joint savings account or getting a home equity loan can help in this regard.
The court does its best to split debt equally. In some cases, though, debts and assets may balance each other out. For example, a person may get more assets but then, in return, receive more debt. For example, one party might be given the marital home along with a larger portion of the debt.
New York is an equitable distribution state, so the courts will award debt based on what is fair. Fair does not mean 50/50, though. If it can be proven that one party racked up the majority of debt, then they might be solely responsible for paying it back.
If paying back the debt is an issue, it may be a good idea to file for bankruptcy before the divorce. That way, the other party is not solely responsible for all joint debt after the divorce when the other spouse refuses to pay his or her share of the debt. Bankruptcy can wipe out the debt and keep creditors away. Debt counseling and consolidation options may also be helpful.
Once the debts are settled, cancel all joint credit cards so that the other spouse can not go on a spending spree as a form of revenge and rack up even more debt. Keep track of all expenses after the divorce so you can prove what you did and did not charge.