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Managing Debts in Divorce
January 26th, 2023
Most couples tend to focus on how their assets will be divided in their divorce, such as who will keep the home, or how retirement assets will be divided. But managing debt in divorce can be just as important. If you don’t take care to consider what happens to your family’s debt in divorce, it could affect your credit score, and your ability to reestablish your home and lifestyle after the case is closed.
What Happens to Debt in Divorce in Connecticut?
In Connecticut, a family’s assets and debts are both treated the same when it comes time to enter a divorce judgment. Your property settlement or the court’s judgment of divorce will equitably divide all your assets and debts. Marital debts to be divided can include:
- Mortgage on the family home
- Auto loans for cars purchased during the marriage (even if driven only by one spouse)
- Credit card debts
- Utility bills
- Tax debt
- Medical bills
- Student loans taken out during the marriage
Often (but not always), a debt will be awarded along with the property it’s connected to. For example, the party taking possession of the marital home will also be responsible for paying the mortgage, auto loans usually go with the car, etc. The Connecticut divorce court may also consider which spouse has enough income or assets to pay the debt and balance both spouses’ interests that way.
Will I Be Responsible for My Spouse’s Debt?
It doesn’t matter if the debt is in one or both spouses’ names, if they were obtained during the marriage, they can be divided in the divorce. This means that if your husband bought a new car or your wife struggled with gambling, it is possible that you will be responsible for a part of that debt.
However, not all liabilities are “marital debts.” If your spouse came into the marriage owing money, such as student loans from college, those will be considered “separate property” and assigned to the spouse who incurred them. Because property division is equitable, not automatically equal, your Connecticut divorce attorney can also advocate for your spouse to take on a greater share of debts that were incurred because of their sole actions or misconduct.
How to Manage Debt During Divorce Proceedings
What about debt that occurs while you are separated or during the divorce process? Will you be responsible for your spouse’s attorney fees, or the cost of their new apartment? As a general rule, parties are married until the final judgment of divorce is entered. Any assets or debts accumulated up to that time are considered marital.
However, once parties have separated, each spouse is generally assumed to handle his or her own financial affairs. The cost of living will often increase for both spouses – you are now living in a one-income household instead of two. You should avoid taking on unnecessary debt during the divorce proceedings. Some costs are inevitable, such as furnishing an apartment after separation. Others can wait until after the divorce is final. Depending on the nature of the expenditures, they may have to though, as Connecticut’s “automatic orders” prohibit, among other things, “further borrowing against any credit line secured by the family residence, further encumbering any assets, or unreasonably using credit cards or cash advances against credit cards” until the divorce case proceeds to aits final judgment. Because property division is based on a theory of what is equitable (fair), if you do run up unnecessary expenses, you may be solely responsible for those costs.
Paying for Household Expenses During Divorce
Your household expenses can’t be put on hold while your divorce is pending. But if you do not have the income to pay the mortgage, utilities, and other household expenses during the divorce, you can ask the Court to award you “alimony pendente lite” or temporary spousal support and child support. These payments only happen while the divorce is pending (though you may receive similar awards in the final judgment), and are designed to allow you to keep up with your debts while you are resolving your assets. In some cases, when you are selling a marital home, the Court may also order one or both spouses to continue to pay expenses related to the property even though you no longer live there, to make sure the property doesn’t go into foreclosure and the value reduced prior to any sale.
Resolving Joint Debts After Divorce
A final judgment of divorce can assign the obligation to pay joint debts to one spouse or the other, but it can’t prevent creditors from trying to collect from a person whose name is on the account. While your judgment can require your spouse to “indemnify” or “hold harmless” any costs you have to pay on their behalf, this can leave you trying to collect on debts your spouse was ordered to pay in the first place. If your spouse files for bankruptcy after divorce, you could even end up paying more than your fair share.
It is a better strategy to resolve any joint debts before, during or after divorce. Just like you want to close joint bank accounts and open new accounts in your name only, you should take steps to disconnect your spouse from your credit history. This could require:
- Refinancing debts to remove the other spouse (most often a mortgage or home equity loan)
- Closing joint credit accounts and transferring balances to new accounts in one party’s name only
- Paying off joint debts
- Buying out a spouse’s joint debt obligation to avoid nonpayment
If you don’t and your spouse falls behind on his or her payments, it could negatively impact your credit score, and prevent you from obtaining new credit. This could even block you from taking out a loan to buy a new home, or replacing a vehicle awarded to your spouse during the divorce.
It is important for both spouses to have a clear perspective on managing debts in divorce. Because property divisions are equitable in Connecticut, you have nothing to gain from hiding liabilities, or trying to force your spouse to pay more than their fair share (although exactly how that plays out in dollars and cents is sometimes at issue).
At Lawrence & Jurkiewicz, our divorce attorneys focus our practice on helping people. We know how to manage debts in divorce, and the best strategies to use to protect you, and your credit score after the judgment is entered. We will meet with you to review your circumstances and advise you on how to divide marital liabilities, so you don’t pay more than your fair share of the family debt. Our attorneys want to help you get a fresh start. Please contact us for a consultation or call us at (860) 264-1551.
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