Consumer debt in the United States is constantly growing, and a 2019 Debt Study by Experian claimed that the average person’s personal debt was around $90,460. Married couples often take on debt together, when buying homes, cars, or other large items; college tuition is another big source of debt. In a divorce, the debt does not disappear, and creditors must be paid. Not doing so can ruin one’s credit and cause items to be repossessed.
What is Equitable Distribution?
States have laws that apply to divorced couples and pertain to marital property and debt. Some are community property states, meaning that both parties own all the money and property they acquired while married. Also, all debt accumulated from day one of the marriage until the date of separation is community debt, and both ex-spouses will have equal responsibility.
Maryland is an equitable distribution state. Divorce courts split up assets and liabilities fairly between divorcing couples. Sometimes, it turns out to be an equal split, but judges are not obligated to divide assets this way. In situations where one ex-spouse is getting sole use of the car or house, a judge may order that person to be solely responsible for the payments. If there are children involved, the judge could order the parent not living in the home with the children to contribute to the payments.
How is Credit Card Debt Handled in a Divorce?
Although courts can order one spouse to pay off the other’s credit card debts, the creditor can pursue both ex-spouses for the amount due. Creditors cannot close outstanding accounts because of changed marital status of debt holders. One spouse could be responsible for a high credit card bill that was opened up in both names, depending on the state, situations, and debt terms. Joint credit card accounts may be closed by one of the debt holders, but only if there is a zero balance.
This issue should be decided during divorce proceedings. Oftentimes, this debt is divided according to the name on the original credit card agreement. Even when these are joint accounts, one person often ends up shouldering most of the payoff responsibility. If the amount owed is significant, options like debt settlement, a debt consolidation loan, or credit counseling can help. Once the credit cards are paid off, it is best to close them immediately to prevent further charges.
What About Mortgages and Property Debt?
Dividing up this kind of debt depends on if either spouse wants to keep the property. If one wants to, control needs to be assumed during the divorce agreement. Before considering this, the spouse must check their finances and make sure they can afford it. Making a major decision like this because of an emotional attachment can lead to further financial burdens. Child support and alimony payments should not be included in the budget because not all ex-spouses follow through on these responsibilities.
When neither party can afford to continue making the payments, it is best to sell the assets quickly; otherwise, the risk of defaulting on the loans is a concern. There are also cases where both spouses want to hold on to the same property, which can lead to extended disputes.
Tax Debt and Student Loans
Paying tax debt depends on when and where the taxes were filed and if they are individual or joint filings. It can be the responsibility of the person who incurred it, or it can be divided between both parties.
Student loans can be complicated, but if a spouse took out one before the marriage, it is their responsibility. Student loans taken out during marriages are settled in different ways, depending on whose name they are taken out in and if both parties benefited from the degree. Ways of paying these loans include refinancing at lower interest rates and income-driven repayments. Some borrowers who cannot pay off student loans may end up considering filing for bankruptcy.
What are Loan Agreements?
Loan agreements are signed when people take on debt, such as a mortgage or student loan. There can be one borrower or others who co-sign the loan. Either way, everyone who signs is responsible for the debt. If a former spouse defaults on payments, the other could end up paying off the debt for years. Divorce agreements do no affect debts, late fees, and collection costs.
How Can I Protect My Credit?
Unpaid loans can follow people long after their divorce agreements are finalized. It is best to pay off any debts as soon as possible, though this can be challenging. The resources described above can be very useful, and some offer free workshops and educational materials.
In addition to student loans, any other loans with one or both names on the loan agreement may be able to be refinanced. A new mortgage will pay off an old one, or a car can be sold and a less expensive one bought. If the spouse who is trying to do this does not have enough income or insufficient credit, they may be able to obtain additional collateral. This could involve getting a personal loan from a family member or selling off other assets.
Any other joint accounts, like checking and savings or investments, should be closed immediately to prevent one spouse from withdrawing money without the other’s consent. A divorced couple should also take care to remain within their new budgets. Starting over can certainly make people want to buy new things for their new lives, but this can also cause debt. Any new purchases should be avoided except for in cases where a larger item is sold and a less expensive one bought to replace it and save money. If a person is concerned about their debt, they should speak to a lawyer.
Towson Divorce Lawyers at Huesman, Jones & Miles, LLC Help Divorcees Manage Debt
Understanding debt in divorce can be complicated. Our Towson divorce lawyers at Huesman, Jones & Miles, LLC understand your concerns and are ready to help you manage your marriage-incurred debt. For a free consultation, complete our online form or call us at 443-589-0150. Located in Hunt Valley and Towson, Maryland, we serve clients throughout Baltimore, Baltimore County, Bel Air, Bentley Springs, Columbia, Freeland, Hereford, Hampton, Westminster, Essex, Monkton, Sparks Glencoe, Parkton, Phoenix, Pikesville, White Hall, Carroll County, Harford County, and Howard County.