When you have marital debt, divorce becomes an issue of not only dissolving a marriage but also dealing with debt. Debt that was entered into during a marriage will survive the marriage, and continue to be the full responsibility of both spouses unless you take specific steps before and during your divorce regarding the debt.
Know Your Credit Report
Protect yourself, and plan for your future life after the divorce by obtaining a copy of your credit report and make sure you review it carefully for accuracy. If you find any mistakes, work to get them corrected immediately. You need to be aware of all your debt, so use your credit report to start a list of creditors and current balances owed.
Consider The Type of Debt
As you review your credit report, think about the type of debt that you have incurred. Chances are that you may have a mortgage on the home you have been living in and possibly one, or more than one car loan as well as several credit cards.
- Do you plan to sell the house?
- Is it worth more than you currently owe on your mortgage?
- If yes, how do you plan to split the proceeds from the sale? Will you use it to pay down debt?
- Can you afford to keep making the payments?
- Is refinancing an option if one spouse wishes to retain the house?
Create A Plan
Debt does not disappear in divorce. If possible, work with your soon to be ex-spouse to decide how marital debt will be handled. If the relationship is too contentious, discuss with your attorney what type of arrangement can be made so that you can minimize your credit risks after the divorce. Your attorney can explain property and debt distribution laws in your state, and can work with you and fight for you to receive a fair plan for eliminating debt before the divorce.
Debt Divorce
Nothing is worse than starting out a new life with bad credit. Several steps can be taken during the divorce process to minimize the chances of this occurring.
First, obtain a copy of your credit report. This will identify all joint accounts, accounts you may not have been aware of, and any potential credit problems.
Next, be sure to pay off and close all joint accounts prior to the divorce settlement and open new accounts in your own name. Unfortunately, creditors don't care how a separation agreement divides responsibility for joint debt (joint credit cards, auto loans etc.). Each person is liable for the full amount of debt until the balance is paid, hence the importance of dealing with this issue prior to your divorce.
Regarding income tax debt, even if the divorce is final, you may not be exempt from future tax liability. For three years after the divorce, the IRS can perform a random audit of a divorced couple's joint tax return. If it has good cause, the IRS can question a joint return for seven years.
Get Legal Help
Debt and divorce are serious, complex issues that need to be handled correctly in order to protect your future. Contact an attorney as early as you can in the process so that you can get your questions answered and make important decisions.
