You may not want to go through a divorce but it can happen. In fact, you can have a divorce even if you don’t want one. Your spouse could decide that he or she no longer wishes to be married to you and file for divorce. In any event, it’s useful to know what would happen to your debts in the event that you did divorce
The way assets are handled
Debt is handled in a divorce much the same way that property is handled. What this means that everything depends on the state in which you live. There are community property states and equitable division states. If you live in one of the nine community property states, all the assets and debts you accumulate after the marriage are to be split 50/50 – a least in theory. If you live in an equitable division state, it’s sort of kitty bar the door because all at your assets and debts will be subject to negotiation and or may eventually be settled by your judge.
What you agree to
If you do live in an equitable division state, how your debts will be handled basically boils down to what the two of you agree to – or what the judge orders. If the divorce is fairly amicable, the two of you may be able to simply sit down and divide your debts 50/50. For example, you might agree to take responsibility for paying off a personal loan while your spouse agrees to pay off your credit card debts.
Four ways to handle your debts
If you live in a community property state, your lawyers and the judge will attempt to split your debt 50/50. On the other hand, if you live in one of the 41 equitable division states there are four ways to handle a couple’s debts. First, you could agree to take responsibility for all your debts. Second, you might say you would pay off all the debts with the stipulation that you would get more of the assets. A third way to handle debts is for your spouse to take full responsibility for them in return for which he or she would get a larger share of the assets. And, finally, the two of you could agree to take equal responsibility for your debts.
Credit card debt is different
It’s important to understand that credit card debts are different from other types of debt. The reason for this is because credit card debts will survive your divorce. To put this another way, if your spouse were to agree to pay off your credit card debts but then didn’t do so, the credit card company could and would come after you – regardless of the divorce agreement. You could be happily on the road to a new, debt-free life only to learn that a credit card company was coming after you for the thousands of dollars that your ex-spouse had supposedly paid off.
A fifth alternative
There is actually a fifth way to handle your debts – at least your unsecured debts. You could agree to contract with a debt settlement company to settle your debts. Good debt settlement companies are usually able to settle debts for pennies on the dollar, which usually means that a couple’s debts can be totally paid off in 24 to 48 months. However – spoiler alert – this works only with unsecured debts such as credit card debts, personal loans, medical bills and personalized credit. If the two of you are having an issue over secured debts like a mortgage or auto loan, the two of you will have to settle them yourselves or wait for a judge to do it for you. While debt settlement will have a negative effect on your credit score – and leave a stain in your credit report – it won’t be nearly as severe as if you filed for bankruptcy.