Debt in Divorce Math
The more I work with divorcing couples the more I realize how hard the concept of DEBT is to accept. It is one of the reasons divorce math isn’t regular math! You can be married to someone who has bad spending habits and it impacts you directly (your credit score, your wallet & more) even if you were not the one in the marriage who was the spender. How? Depending upon the laws that govern your resident state, debt accumulated during the marriage is marital debt…period… meaning you are both on the hook to pay it off, even if you never used the card and/or your name was never on it. Why?
Debt accumulated during a marriage is considered the debt of BOTH parties.
The GOOD NEWS is having good records can help. You may be able to argue or negotiate that you should not be responsible for debts in your marital agreement, if you have good records to prove it.
The BAD NEWS is you cannot control your soon-to-be ex-spouse and creditors do NOT care what your marital agreement says. Your soon-to-be ex-spouse can continue to spend, putting your credit score in jeopardy.
What can you do to help your situation?
Depending on your resident state, you can “draw a line in the sand” with a date for which our marital assets will be valued (typically the date of separation or filing). This date is used to determine the worth of assets/liabilities in your marital agreement and will be listed on the Marital Asset Addendum.
You can negotiate to NOT take on certain debts after divorce. Remember, much of the marital agreement is a negotiation.
Weigh your battles! It may make more sense for you to take some of the debt that you did not create than to “win the argument” by paying your attorney to “WIN” in court. Court is expensive! Sometimes it makes more sense to walk away and pay part of the debt.
To protect yourself, have the language in the marital agreement lay out specifically the steps your spouse will take to get your name off the debt and a deadline for completion for accountability.
You may consider saying something like: “Jennifer will have Larry taken off as a user of her Discover card ending in 0089 within 30 days of this agreement. She will also provide a statement from Discover on her account ending in 0089 showing all debts transferred into an individual account in her name only within 60 days of this agreement.
ALWAYS ADD A TIMEFRAME! This is your divorce; make your agreement as specific to the situation as possible.
Beware!
Even if you take part of the debt to negotiate in divorce, creditors can still hold you accountable…legally. You may have to take your ex-spouse back to court to enforce your agreement and make them responsible for the debt.
Are you unsure of how to split the debt in your divorce? Divorce math is hard! At The Financial Knot®, we’ve helped so many individuals navigate this complex process. If you’re looking for assistance, contact us today to have an experienced financial professional on your team!
The Financial Knot® is another business name for Independent Advisor Alliance, LLC. All financial planning advice is offered through Independent Advisor Alliance, LLC, a registered investment advisor.
