How is Debt Divided in Divorce?
When South Carolina couples divorce, they need to divide their marital assets. But few people also know they need to divide some of their debts. The average American has almost $6,000 in credit card debt, not to mention student loans, car loans, and mortgages. In total, many Americans are six figures into debt, paying hundreds or thousands of dollars each month.
So how is debt divided in divorce? Surasky Law Firm can help. Our Aiken, SC divorce lawyer has handled many divorces, and he provides an overview of debt division in this article.
Fully Review Your Debts
Many people are unaware of their debt. In South Carolina, your marital debts are those either spouse took out while you were married to each other. The debt might not have your name on it, but it is considered marital and needs to be divided.
Many people have unsecured debt, like:
· Credit cards
· Medical debt
· Personal loans
· Student loans
South Carolina couples usually have some secured debt, such as:
· Home equity line of credit
· Car loan
A secured loan is backed by collateral which the lender can seize if you default. In that way, it’s tied to the asset.
You Can Divide the Debts Yourselves
Couples have the power to decide how much debt each will leave with. For example, you might agree that whoever gets the house will take over the mortgage, or each spouse will leave with their credit card debt.
Our law firm always considers your marital debt when negotiating a property settlement agreement. It makes no sense to divide your marital assets 50/50 but then voluntarily leave with all the debt. That simply lowers the value of your settlement.
How Will a Judge Divide the Debt?
Despite their best intentions, some couples simply can’t reach an agreement, so the issue of debt division goes to a judge. Judges divide assets and debts “equitably,” which means a fair division. Judges can consider many factors, such as:
· The spouse who took out the debt. A judge won’t automatically assign the debt to whoever took it out, but this is a factor to consider.
· The reasons for the debt. Was debt used for the family or for individual pursuits like gambling? Did your spouse use debt to benefit a new lover?
· Who benefited from the debt. Your spouse might have taken student loans, which is a clear benefit to them, since they have higher earning power.
· Each spouse’s income and earning potential. A spouse who has higher income potential after divorce might fairly get more of the marital debt.
Your choice of attorney can make a big difference. We can review all evidence and argue to the judge that your spouse should leave with more debt. For example, if your spouse committed adultery, you should use that to your advantage.
Physically Dividing Debt: It’s Complicated
At divorce, a judge will issue a divorce decree. This decree will assign debts to each spouse. As an example, the judge might decide that a $5,000 credit card debt in your name should be paid by your ex.
However, creditors are not bound by the judge’s decree. This means the credit card debt is still in your name, and if your ex doesn’t pay, your credit will tank. You could end up in collections and possibly court defending yourself from a lawsuit—all because your ex isn’t paying the debt.
We strongly recommend getting debt in the name of the person who will be responsible for it going forward. This might mean:
· Refinancing a mortgage. If your mortgage is in both of your names, then the spouse taking it over should refinance in their name only.
· Transfer credit card debt. Your spouse can use a personal loan or a credit card in their name only to take over the debt.
· Use personal loans to pay off debt. The personal loan is in only one spouse’s name, because they are now responsible for the debt.
What if Your Ex Isn’t Paying the Debt?
This might sound like a nightmare, but it’s a real possibility. We know of many people with debts assigned to their ex, who stop paying.
One option is to go to court and ask a judge to enforce the property settlement agreement. The judge can call your ex into court and ask why they aren’t paying. The judge might even penalize your ex or hold them in contempt to get them to pay.
Of course, there might be valid reasons why your ex can’t pay, such as workplace injury or illness. For this reason, we always try to get your debts transferred into your ex’s name after the divorce.
Divorce and Bankruptcy
Bankruptcy might be the only way to get out of paying some debts you simply can’t afford. A bankruptcy can eliminate certain unsecured debts, like credit cards and medical debt—but not typically student loans. A lender can also foreclose on a secured asset, like your car or home. As you can see, filing for bankruptcy doesn’t cure all problems, but it can help get rid of some debt.
Parents must also know bankruptcy won’t eliminate child support or alimony payments. Those survive any bankruptcy that you file. And if you stop paying, they will simply accrue interest.
If you are considering bankruptcy, then timing matters. There are advantages to filing while still married or after divorce and disadvantages to each. Always discuss your current financial condition with your attorney, which is vital for getting the divorce that works for you.
Need Assistance with Debt Division? Contact Surasky Law Today
Anyone considering divorce must hire a seasoned, knowledgeable divorce lawyer to help them. So much is at stake. The worst thing is to leave your marriage saddled with debts you cannot pay. Let us review your marital finances and help you determine which assets to request—and which debts to fight off. Please call our law firm today to schedule a free consultation.