Unless you take extra steps to protect yourself, ditching debt after a divorce from jointly held cards is difficult. Credit card companies aren’t bound by divorce decrees, so they can go after you for jointly incurred debt if your former spouse doesn’t pay.
This is why divorce attorneys, financial planners and credit counselors recommend that you leave your marriage with no joint debt. By either paying off the joint cards together or dividing up the debt on joint cards and transferring it to cards in each partner’s name, the goal is to remove your liability for your partner’s debts. It’s also important to inventory your wallet and make sure all joint credit cards are canceled during the divorce process.
The consequences of going into your new life with jointly held debt are potentially painful: Should your ex file for bankruptcy or just not pay what he or she is supposed to pay, your creditors can go after you for the full amount of the debt, plus interest and penalties. You can include provisions in the divorce agreement to force your ex to pay up, but going back to court is expensive and time-consuming.
However, parties who are in default on credit cards or other debts may be able to negotiate lump-sum settlements. An experienced divorce attorney can help with this by assisting with creditor negotiations and by helping the client to identify sources of cash to fund settlements.
When one spouse assumes a debt bearing the other spouse’s name, a judgment should require the assuming spouse to attempt to remove the other spouse’s name from the debt. Judgments may include various security devices to ensure that a party actually pays the debts he or she has assumed. These devices include leins on other property awarded to the assuming spouse, life insurance to provide funds in case the assuming party dies, or the right to offset other obligations between the parties.
In addition to considering the total amount of debt, courts and attorneys must also consider cash flow. If a party assumes a debt that carries high payments, this may be a consideration in awarding or reducing spousal support. Under the Michigan Child Support Formula, one party’s assumption of joint debt is a factor that can support a deviation from the child support formula.
In regards to a mortgage, to remove one spouse’s liability from the mortgage, the property will either need to be sold, transferred/deeded or the mortgage refinanced or assumed. One can always choose to keep themselves on the mortgage, but this is a risky position if the other spouse happens to default on the loan.