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Dealing With Debt in Your Divorce

| Feb 4, 2014 | Divorce |

The economy is slowly improving but debt is still a major issue in Georgia divorces. When we talk about dividing debts and assets in a divorce action, the first issue is to determine if the debt or asset is “marital”. Marital debts and assets are debts and assets that were acquired during the marriage by either party regardless of whose name the account is in. If an asset or debt was acquired by one party prior to the marriage, it is likely pre-marital and not subject to division in the divorce.

Assets are easy to divide but debt is much more complicated. The purpose of a divorce is to separate people as completely as possible. While the court has broad discretion to award marital assets and debts to one party or the other, regardless of whose name it is in, the court cannot change or modify a contract you have with an outside person or organization. For example, the court can order the husband to make the payments on a credit card in the wife’s name but the court cannot stop the credit card company from damaging the wife’s credit or otherwise trying to collect the debt against the wife if the husband fails to follow the court’s order and pay the debt in a timely fashion.

The most problematic situation involving marital debt can be the home. In today’s housing market many houses are still worth less than is owed on them. This is problematic if the debt is in both parties’ names because there are only three options for getting someone’s name off of a mortgage obligation, pay off the mortgage, sell the house and pay the deficiency or refinance the loan into only one spouses name. Paying off the mortgage is not usually an option for divorcing families and paying a large shortfall from the sale of an underwater house is often not possible either. There are some viable refinance options for upside down homes under new federal programs but one of the parties must have the income and credit rating to qualify for the refinance individually. If none of these alternatives are possible the remaining options can be less than ideal. Houses can be allowed to foreclose, which will obviously damage the credit of both the husband and wife. The parties can continue to live in the home together after they are divorced. Or, one party might be forced to leave the home but still be obligated on the mortgage debt, even if the spouse that is living in the home has been ordered to pay the mortgage, the credit rating of both former spouses will remain in jeopardy if the payments are not made on time.

The solution to all of these scenarios is cooperation between the parties, creative thinking between the spouses and their lawyers and a well thought out settlement agreement. An experienced divorce attorney can draft a settlement agreement to help protect the financial well being of their clients. For example, one spouse might move out of the home while he or she is still obligated on the mortgage debt but the settlement agreement could specify that the house be listed for sale at the amount of money that is owed. The house might not sell right away but the settlement agreement can be very clear about under what conditions the parties can raise of lower the asking price, what offers both parties must accept, who is responsible for what expenses or repairs and what condition the home must be kept in until it sells, along with any other possible contingencies. These might not be ideal situations but as long as everybody knows and is willing to live up to their court ordered responsibilities, all of these situations can eventually be resolved.

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