What Divorce Means for Your Debts

There is a reason why finances play a prominent role in marriage. After all, finances are a main reason why many marriages fall apart and lead to divorce. Unfortunately, they can play a prominent role in the divorce process as well.

Everyone is familiar with the split of assets in the divorce process, but what about debts? How are debts handled throughout the divorce process? Well, it varies state by state. The Knoxville property division attorneys at LaFevor & Slaughter explain the relationship between your finances and divorce in today’s blog.

How are debts handled in divorce?

Like a couple’s assets, a couple’s debts are usually divided equitably among both partners in Tennessee courts. In some cases, the partner who earns the least may be awarded less debt than the spouse who earns the most; it kinda depends on the circumstances.

But all of the “rules” can fly out the window when it comes to credit card debt, so let’s start there.

How do the courts decide to split credit card debt amongst a divorced couple?

Whether a partner is responsible for their spouse’s credit card debt can depend on:

• Whether the credit card is held in the partner’s name or not.
• Whether the credit card was used to pay for joint assets.

It all has to do with marital vs. separate property. So if you have a credit card in your name that you use to buy YOUR stuff, or pay YOUR bills, then the court might say that’s YOUR debt, and you’re on the hook for paying it.

Many courts, though, consider credit card debt to be marital debt that was accumulated during the marriage. In this case, both spouses have to pay. If the credit card debt is accumulated from a joint credit card, both partners will be responsible for paying the debt, regardless of who was writing out the checks.

What if one partner stops making payments on a joint credit card debt?

The credit card company doesn’t give a fig who racked up those bills. If the card is in your name, they’re coming after you and you alone.

If you’re both on the card and your ex-spouse fails to pay their portion of the debt, you’re still legally liable for the debt. Both spouses can find themselves and their credit in bad places if joint debts are not paid off. During the divorce process, you should conduct an individual credit check to determine who’s on the hook for what.

So – that covers credit cards, in a nutshell. But for some couples, credit cards aren’t the biggest debt, right? That would be the mortgage. So, let’s take a look at that now.

How is mortgage debt handled in a divorce?

If both partners are listed on the mortgage, the mortgage debt would be resolved by selling the house and splitting the money. Although there may be sentimental reasons why either one or both partners would love to keep the house, this option is best for both parties because it gives both parties a chance to walk away freely.

If one of you really wants to stay in the family house, though, and the other one says that’s okay, then you should contact the mortgage company as soon as possible, because a lot can go wrong. You may need to take out a second mortgage in your name alone to pay off the first one. And that’s fine, except having half an income can affect your loan application. (See why it’s better to just sell?)

While both people are waiting for the house to sell, an agreement should be met concerning how much each of you will contribute to the mortgage payment. In some cases, mortgage debt is assigned either to the spouse who makes the most in the marriage or the spouse who has been awarded full custody of the children.

Okay. That covers mortgages. Let’s turn to auto loans next.

How do the courts split auto loan debt between two divorced partners?

The same way it handles just about everything else: it depends on whose car it is. If the car loan is in both your names but it’s your car, chances are good the judge is going to say you have to pay that bill. You’ll likely have to go through the same type of rigamarole that you went through with the home loan, though, because creditors don’t care whose name is on the bill. So if YOU default, both of you are in trouble.

What happens if one spouse files for bankruptcy?

This is a whole other ballgame, right here.

If your former spouse has to file for bankruptcy because they could not keep up with their debt payments, you could end up suffering big time. When one spouse files for bankruptcy to eliminate any joint debt, the debt is not erased; instead, that person’s liability is wiped out from the debt.

The creditor then has the power to go after the other spouse, the one who did not file for bankruptcy – AKA, you – for the entire amount. And that means ALL debts: the joint credit cards, the mortgage, the car loans, the home equity loan, the loan you took out to fix the roof. You name it, and you’re paying for it.

So if your ex is talking bankruptcy, get a lawyer ASAP, because you could be in serious trouble.

What do I do if my ex defaults on debts?

If you thin your spouse is going to punk out on the bills, you can request that an indemnity clause be enforced into the divorce decree. An indemnity clause is an undertaking from one spouse to another. It is similar to an agreement of protection from one spouse to another.

The indemnitor, or the person making the indemnity, promises to pay the debt and ensures that the indemnitee, or the person receiving the indemnity, will not be harmed as a result of the indemnitor’s failure to pay the debt. If an indemnity clause is not in place, the other spouse has other options such as petitioning the court and demanding that the other spouse fulfill their demands of the debt payment.

Getting a divorce is challenging; choosing the right Knoxville family law attorney to represent you shouldn’t be. We fight for you throughout the entire process and don’t stop until your divorce is resolved. To discuss your divorce options with an experienced Knoxville divorce attorney, call LaFevor & Slaughter at (865) 637-6258 or fill out our contact form.