Avoiding Debt Obligations After Divorce

omitted property divorce

In every divorce, the court must divide marital property, both assets and liabilities. Sometimes this process can be very smooth – bedroom set to one spouse, dining room set to another spouse. But some can be complicated and linger after the divorce.

For example, if a couple jointly owns a home, the court has two options with respect to disposition – award the house to one spouse with a balancing equity payment to the other spouse, or order the house sold and the proceeds of the sale divided. More often than not, one spouse wants to keep the house. In that situation, the vacating spouse would sign a quitclaim deed that gives full ownership to the other spouse. But if a mortgage remains, that spouse is still legally liable for payments under the mortgage contract even if the decree has a “hold harmless” provision and orders the retaining spouse to refinance. This can pose a dilemma during divorce negotiations and for post-divorce enforcement. The vacating spouse likely does not want any financial risk, and certainly does not want the mortgage company trying to execute on his or her assets for unpaid sums by the spouse who actually owns the house and has full financial responsibility (well, almost).

What can a spouse do to avoid this problem? Perhaps the easiest solution would be to require the spouse to refinance within 60 days, after which the house would be put on the market. This way, the potential vacating spouse is only on the hook for two months without actual interest in the property; after the two months, it is a joint asset whose proceeds both spouses will divide equally. A spouse could also explore mortgage insurance as an option. But the worst case scenario – the mortgage goes unpaid for months with no provision for sale – should be avoided as it would require up front efforts on the part of the vacating spouse to cure the financial issues with the house and later go back and seek reimbursement for all funds and legal fees expended.

Another similar problem involves jointly held credit card debt. Where spouses have a credit card account with a significant unpaid balance, the court will require one spouse to be responsible for the debt, holding other spouse harmless. In this situation, if the responsible spouse fails to stay current, the credit card company could pursue the other named spouse. To avoid a credit dilemma, you could negotiate a debt consolidation onto an account owned exclusively in the name of the responsible spouse. Otherwise, the “harmless” spouse will have to take steps to pay toward the debt and seek reimbursement through the courts.

It is very important while negotiating a property settlement to consider what debt may be outstanding that could haunt you even after the court disposition.

If you have questions about marital debt issues after divorce, contact us – we can help.

Recent Posts

You need an experienced divorce attorney on your side.