Marital Debt and Divorce- Options
February 24th, 2019
Contributor: Edward P. Jurkiewicz
In resolving a divorce case how to allocate marital debt is sometimes an afterthought. After issues of child custody and support, and the related issue of alimony comes the "oh yeah...that" moment. Perhaps because no one really likes to think about debt. In dissolution cases the debt issue can be a "rock" in the negotiation process that results in a trial. Who should bear responsibility for the debt and its various components is often viewed subjectively. One spouse may see the other as a spendthrift who insists on an extravagant lifestyle, while the other views such expenditures as necessary. But debt issues are solvable.
The court can allocate marital debt in any way it thinks is fair. A separation agreement must provide for this somehow. Solutions are unique to each case. If each spouse is more or less equally liable on credit cards, loans, etc. they might agree to split the marital debt equally and promise each other that they will pay the share they agreed to. This is a "hold harmless" agreement.
A divorce judgment is only binding on the spouses. Banks and other creditors are not bound by the judgment. If both spouses owe a debt and the husband agrees to pay it, the wife may be sued if the husband defaults. Ability to pay is important in the long run. Divorce is a process in which one household becomes two, and living expenses naturally increase. What if the parties can't pay, despite their best intentions?
The bankruptcy option.
Although it should be a last resort in a divorce case, bankruptcy can be a valuable tool in these situations. While still married, the parties can save costs by filing jointly. And if the parties are already separated, the income-based eligibility requirements of bankruptcy are easier to meet.
Of course, bankruptcy is a voluntary process. It's challenging for divorcing spouses to agree on anything, even if there is a need for it. While far from the only option for resolving marital debt issues, bankruptcy should at least be considered.
If you would like to discuss further, please contact me.