How Can I Protect My Credit During My Divorce?
It comes as no surprise that Florida courts divide marital assets between both spouses during a divorce, but were you aware that liabilities and debts are also divvied up?
Just like marital property, which is acquired during the marriage, debts, liabilities and loans that are acquired after the wedding day often belong to both spouses. That means marital debts, which may include mortgages, car loans and credit card balances, will fall on the shoulders of each spouse. Courts, guided by principles of equity, will divide marital debts between spouses as they deem fair. A higher earning spouse, for example, may shoulder more of the burden of marital debts.
But regardless of which spouse is responsible for the lion’s share of marital liabilities, both spouses will be obligated to repay the debt. The only agreement that creditors care about is the original agreement signed with them. Creditors are not required to acknowledge a final divorce decree that orders one spouse to pay back the debt. If the responsible spouse fails to pay marital debts, creditors will come to the other spouse looking for payment.
The shared debt obligations expose ex-spouses to potential financial hardship. If one spouse defaults on a credit card, the other spouse’s credit score could take a major hit.
Fortunately, there are number of wise money moves you can make to avoid credit issues if you are considering a divorce.
Although you have decided to split your liabilities with your ex-spouse, there is nothing protecting you from a potential default. When an ex-spouse that shares a marital debt fails to make payments, the other spouse must make up the difference or risk damage to their credit rating.
An indemnification clause built into your divorce settlement can protect you in the event that your ex-spouse fails to repay his or her portion of marital debt. If the clause is constructed properly, you may be able to take your ex-spouse to court to recover any money you had to pay as a result of a loan going into default.
Buying Out Your Spouse
If you have a loan for a car, house or some other marital asset, either you or your ex-spouse may take possession of the property after divorce. However, this does not relieve you or your ex-spouse from making payments on the loan.
If your spouse is buying you out of your family home, for example, you are not completely off the hook. You may still be liable for the joint mortgage unless you sell the house, pay off the mortgage or your spouse refinances to remove your name. Remember, taking your name off the title of the house does not remove your name from the mortgage.
Since taking your name off the title of marital property will not relieve you from an outstanding loan, is it critical that you keep your name on the title until it is refinanced. For example, if your ex-spouse keeps a family car, your name can only be removed from the loan through refinancing. In order to refinance property in your spouse’s name, you will need to insist that the property is still under a finance agreement. This can only be accomplished if you are still on the title.
When negotiating a divorce settlement, it is important to state clearly that loans must be refinanced. You should also determine a time period in which refinancing must take place. Finally, the settlement should state the consequences of failing to refinance within the specified time. A common consequence is a forced sale of the property.
If you are anticipating a divorce, it is a good idea to pay off as much marital debt as possible, uncover all of the debt in your name and in your spouse’s name, add an indemnity clause to your divorce settlement agreement, and make sure the debt you or your spouse is ordered to pay is refinanced.
Florida Divorce Attorneys Who Understand Marital Debt
If you have questions about how a divorce will affect your debt payments, you can contact our family law attorneys at Arwani Law Firm, PLLC. We have handled complicated high conflict divorces, and we are confident that our team can provide you with the legal assistance and attention that your case requires.