Divorce can be one of the worst things to happen to you. I know one couple that divorced two years ago and the husband still hasn’t recovered. When both parties want the divorce, both can walk away feeling okay or in the words of the rock group Chicago, “feeling better every day.” However, with many divorces come sadness, anger, guilt, frustration, depression and grief. It that’s not enough there can also be the haunting specter of divorce with debt.
The first thing that most couples think about when contemplating divorce is the children–if there are any. The second thing is the couple’s property and how it will be divided. This can be very easy or very difficult depending on the assets involved. Young couples that have few assets worth fighting over can usually reach a settlement fairly quickly and without much anger. Middle-aged couples may find it more difficult to divide their assets, as there is much more at stake. There may be 401(k)s, several automobiles, equity in their home, maybe a vacation home, a boat, multiple savings accounts, investments and even more.
The forgotten element
While couples generally think about their kids and their assets, they often forget about that nasty phantom called debt. Again, this may not be much of a problem for young couples as most don’t have much credit card debt. But couples in their 40s and 50s can have amassed a pile of secured and unsecured debts. There is usually a mortgage, credit card debt, automobile loans, maybe personal loans and even medical bills. I read recently that the average US household has credit card of $15,956. Since this is an average, you can bet that some households are carrying much more debt than this.
Why divorce with debt can be so troublesome
The first problem with debt is that nobody wants to get stuck with. It might be relatively easy to trade assets, as in “I’ll take the furniture and you can have the travel trailer.” But is much harder to trade debt. For that matter, the question of who pays which debts often depends on the state where you live. If you live in a community property state such as California, Idaho, Nevada or New Mexico, the law says that all debts are held equally. This means you will each have to pay 50% of your debt. It doesn’t matter whether you ran up the debt, your spouse was responsible for it or you were both responsible–you will still have to find a way to split it 50/50. As you might guess, this can lead to a lot of ill will if one of the two partners is forced to pay 50% of the debt on credit cards that were in the other’s name.
Equitable division states
Debt is handled differently if you live in a non–community property state–usually called an equitable division state. In this case, the court will try to use divide your debt in a way that’s fair and equitable to the both of you. However, don’t mistake the word equitable for the word equal. In some cases the court may order one of the two principles to pay off all the debt but awards that person more of the assets to make up for this.
Other ways to handle your debt
In addition, there are other ways to handle divorce with debt. You can agree pay them all off now. You might agree to be responsible for all the debt with the agreement that you will get more of the assets in compensation. Finally, the two of you might agree take equal responsibility. Of course, it may take serious negotiations and some very bad feelings before you can agree to one of these alternatives.
The other big problem
The other big problem in divorce with debt is that if your partner agrees to “hold you harmless” for repaying your debts, this is only binding between the two of you. This does not include third parties, including credit card companies who are not bound by divorce decrees. If your spouse can’t pay off the debt or files for bankruptcy, the credit card companies can and will most likely come after you.