Picking up the debt tab after divorce

On Behalf of | Mar 30, 2020 | Divorce |

Dividing property is an important issue that Michigan couples must deal with when they end their marriage. In addition to property division, they must also determine who is responsible for certain debts when they divorce.

Each spouse may be surprised on the debt that they may have resolve after divorce.

A spouse who signed on a loan as a borrower or was a cosigner is legally responsible for that debt, even if it is accrued by the other spouse. Late fees charged for the other spouse’s delinquent payments are the responsibility of the spouse who signed or consigned the loan.

Separating assets helps avoid paying the other spouse’s debts. In a prenuptial agreement entered before marriage, the spouses identify individual assets and debts acquired before marriage and their division if they divorce.

If a prenup was not entered, spouses can execute a post-nuptial agreement after marriage. These agreements, however, may not protect a spouse from shared debt accrued during their marriage.

A spouse may also protect their assets through investments in protected accounts. These include retirement accounts, trusts or annuities.

Ending the use of joint credit cards is important and identifies which spouse holds debt. You should try to have your name removed from joint credit cards or as an account cosigner. If this is not allowed, identify spending activity to hold that the spouse responsible.

Paying off as much community debt as possible before divorce hearings consolidates debt consolidation. It also aids with identify which spouse is responsible for the debt.

How debt is paid off, the amount of disposable income compared to credit debt and joint financial activity during marriage affects credit scores. Both spouses are responsible for any financial delinquency on a joint home loan or credit account. Both credits score will be impacted by a spouse’s failure to pay off debt that even if that spouse agreed to pay it.

Removing yourself from joint accounts, paying off outstanding debts and refinancing existing loans to hold one spouse responsible may help raise credit scores. Seeking future credit may rely on the strength of these credit ratings.

An attorney can present options that protect a spouse’s financial future. They can also seek a fair and reasonable decree.