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Shared debt and your divorce

| Jun 24, 2020 | Family Law |

Most married couples share some amount of joint debt, making the division of this debt a potential challenge during a divorce.

Understanding how creditors view debt liability during and after a divorce is very important to any divorcing spouse as they prepare to make a fresh start as a newly single person.

Divorce decrees and account names

After a couple negotiates and agrees on how they will apportion their shared debt after their divorce, the terms of their agreement may be outlined in their final divorce decree. Once approved by a judge, the couple may believe this decree supersedes any agreement with a creditor. However, Bankrate explains that may not necessarily be the case.

A divorce decree may stipulate that one spouse will repay a certain debt. If that original account remains active with both spouse’s names listed, the creditor may still pursue repayment from both parties. The spouse deemed liable in the divorce decree may find themselves in a financial bind and unable to make payments on time or at all. These late or missed payments may reflect on both parties’ credit reports as well.

Mortgages and keeping the family home

According to The Mortgage Reports, the same concept that applies to debts like joint credit card bills also applies to a joint mortgage. For this reason, when one spouse wants to keep the family home after a divorce, that person should evaluate their ability to obtain a new solo mortgage. This requires a review of their post-divorce income and credit score as well as the amount of equity they have in the home.