Divorce Debt Relief

Differentiating Individual Versus Joint Debt Responsibilities?

Distinguishing between individual and joint debt is critical because it dictates who is legally responsible for repayment in the eyes of the creditor:

• Individual Debt - Debt incurred by you or your spouse before the marriage, or debt incurred in one of your names alone during the marriage (depending on state law), is considered individual debt. If you opened a credit card in your name only and used it solely for personal expenses, you're typically responsible for it.

• Joint Debt - This category includes any debt where both spouses signed the agreement. Common examples include joint credit cards, mortgages, and auto loans co-signed by both parties. In these cases, both individuals are fully responsible for the entire debt amount. If one person stops paying, the creditor will pursue the other for the full balance.

How State Laws Affect Debt Division in Divorce

Where you live plays a massive role in how your debts are divided by the courts. U.S. states fall into two categories for asset and debt division:

• Community Property States - These include California, Texas, Arizona, Idaho, Louisiana, Nevada, New Mexico, Washington, and Wisconsin. Most debt incurred during the marriage is considered "community" debt, so, regardless of whose name is on the account, both spouses are equally responsible for debts incurred between the wedding date and the date of separation. The court typically splits these debts 50/50.

• Equitable Distribution States - The majority of other states follow equitable distribution laws. Equitable means fair, not necessarily equal. Various factors, such as each spouse's income, the length of the marriage, and who benefited from the debt, are considered when dividing the debt. This might result in a 60/40 split or another arrangement deemed fair by the judge.

Managing Specific Types of Debt During Separation

Not all debts are treated the same during a divorce. Different liabilities require different strategies to ensure you're not left holding the bag for assets you no longer possess.

• Mortgages and Home Equity - The family home is often the largest asset and liability. If one spouse keeps the house, they usually must refinance the mortgage into their name alone to remove the other spouse's liability. If refinancing isn't possible due to income or credit constraints, the home may need to be sold to pay off the loan.

• Auto Loans - If both names are on a car loan, the spouse keeping the vehicle should refinance it in their name. If you remain on the loan but don't keep the car, your credit score is at risk if your former partner misses payments.

• Credit Card Debt - Credit cards are notoriously difficult to manage in divorce because they're unsecured debt. Ideally, joint cards are paid off and closed immediately upon separation. If that's not possible, balances can be transferred to individual cards, or a debt relief plan may be required to resolve the balances for less than what is owed.

Protecting Your Credit by Removing Authorized Users

A simple step is managing authorized users on accounts. If you have a credit card in your name but your spouse has a card attached to the account as an authorized user, you're liable for their spending. Even in an amicable split, emotions can run high, and spending can spiral out of control. Contact your credit card issuers immediately to remove your spouse as an authorized user. This prevents them from adding new charges to an account that you're legally responsible for paying. Also, if you're an authorized user on their account, ask to be removed to ensure any card use or missed payments don't impact your credit report.