Home Loan Handling Debts and Loan Payments during a Divorce: What You Need to Know
Handling Debts and Loan Payments during a Divorce: What You Need to Know

Handling Debts and Loan Payments during a Divorce: What You Need to Know

Financial issues are one of the major problems that come with divorce, with bitter spouses trying to one-up the other in property divisions and debt and loan payments. There are laws, however, that must be followed when dividing marital assets and assigning payment of debts in a divorce. These laws vary depending on the state where you file for divorce.

Most states follow the equitable distribution law. In handling debt and loan payments, it means that the spouse who incurred a debt will pay for it. Hence, a credit card debt will be paid by the spouse whose name is on it, regardless of when the debts were incurred, before or during the marriage. But that is the easy part. Payment of home mortgages is much more complicated, especially if one spouse owned the house before marriage and the other spouse contributed to improvements in the years that they were married. The court will not interfere if the spouses come to an agreement. It only comes in if a failure of negotiation occurs.

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Ten states follow the community property law. These are Alaska (by agreement), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In the community property law, assets acquired during the marriage will be equally divided between the two divorcing spouses. The same principle holds true for debt and loan payments.

One thing that parties in a divorce may not anticipate is one spouse not fulfilling their end of the agreement in debt and loan payments. In California, which is a community property state, the court judgment detailing the division of debt payment may be incorporated into the marital settlement agreement. Thus, if one spouse fails to pay their share, the family law on money judgment may be enforced.

But if the debt or loan payment is not incorporated into the MSA, it is considered a contract and family law cannot be applied to it if one spouse refuses to pay. Family lawyers say your recourse is to file a civil case for breach of contract against the former spouse.

Creditors are not under obligation to obey the terms agreed on in a divorce case. For as long as you signed the loan contract, they will go after you even if the delinquent payer is your ex-spouse. Your credit score can be damaged through no fault of your own.

Another difficulty comes up if your spouse has unpaid debts you were not aware of. If you are living in a community property state, half of that loan becomes your responsibility to pay if the loan was incurred during marriage, although you never saw or benefited from, the proceeds of the loan.

A student loan taken out before getting married remains a separate property and is to be paid off by the spouse who took out the loan. If a student loan was obtained in the course of the marriage, payment is divided between the two partners while considering who benefited from the loan.

If you offer to take out your name in a title or certificate of ownership of a house or car in a divorce and the loan is still outstanding, you are in a community property state, the loan will still be divided by both of you and you have no claim on the property.

Paying debts and loans as part of a divorce agreement adds to the pain of already battered emotions. A lawyer who is an expert in divorce cases can help you out of the difficulty of negotiating an agreement and prevents you from being fooled later on when one spouse defaults on loan payment.

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