How Does Debt Impact A Divorce?
You might have heard a piece of advice from divorce experts that is difficult to follow. Pay off as much marital debt as possible before you divorce. For some couples, that is not practical advice to follow. Debt can become a huge issue when couples disagree on who should shoulder the burden. Read on and find out some tips on dealing with marital debt.
Know What Marital Debt Includes
You and your spouse might have both marital debt and separate debt — many couples do. Separate debt includes obligations you had when you married. Any new debt acquired after the date of the marriage, though, can be considered marital debt even if it's in only one of your names. It's a good idea to make a list of all separate and marital debts for your own information as well as for your divorce lawyer. It will give you a good idea of what you are facing as you try to divide it up.
Know What Divorce Provisions Mean in Your State
It's helpful to know what type of state you live in, either community property or equitable distribution. Those residing in community property states should expect their debts to be divided 50/50, no matter what. Those residing in equitable distribution states, which encompasses nearly all states, should expect their debt to be divided according to what is fair considering their debt and property division agreement. The judge will assign debts to even out a property division that appears uneven, for example.
The Issue of Intermingling
Unfortunately, the lines between marital debt and separate debt can become blurred, especially when a couple has been married for a while. Many couples have both intermingled debts and property. For example, consider how confusing things could get if one party owned a home before the marriage but then both parties contributed to the mortgage payments. Or each party has a savings account, and they decide to combine them and buy a rental property that will produce income.
Now, assets and debts are intermingled. Untangling things is not impossible, but it may require more work and time to resolve. If things can be decided between the parties in a fair manner, the divorce can proceed. However, many couples must consult with a financial specialist for more help.
If you are far from being able to pay off marital debts before you divorce your spouse, speak to a divorce attorney for more help in dealing with this issue.