In an earlier blog we mentioned dividing debt between both parties much the same as you would divide assets. This is a good practice, however must be used with caution.
The party to whom the debt is owed has no obligation to honor the division of debts decided upon as part of the a divorce agreement. Let's say that a couple has a personal loan of $50k and both parties' names are on the loan. If during the divorce agreement the wife is held responsible for making payments on the loan, this doesn't mean that the husband is off the hook. If wife stops making payments, the debtor can go after both the husband and the wife for repayment.
To avoid this type of situation, there are a few solutions. To begin with, perhaps the debt can be repaid before the assets are divided. For example, if the family residence is sold, the proceeds from the sale may be used to pay off any community debts. The remaining proceeds, if any, can then be divided between both parties.
Another solution would be for the party who is responsible for the debt to take out a credit card in their name only and transfer the debt they are responsible for on to that card (for debts involving credit cards) or to refinance the loan in their name only (for personal loans and other debts).
Either of these solutions are good options to protect the interests of both parties and to prevent future harm to the credit of either party.
Most families today carry at least some debt. With the many decisions that need to be made during a divorce, don't let this important issue fall through the cracks.Call Richard Ross Associates today - we've got your back!