What happens to debt in a divorce?

For many families, divorce is an opportunity for a financial fresh start. During the divorce process, we must address the debt and how the debt is paid. Debt really does stink. Unfortunately, most of us have more debt than we'd like. How do you get rid of debt in a divorce? In my search for answers I've come across several services that might help. Check them out if debt is bringing you down.

First, and most importantly, protect your credit

During or after the divorce both spouses need to be clear as to who keeps what debt and what happens with the joint debt. Hence, it is important to get your name off the loans by refinancing or having your name removed for joint liabilities.

Make sure the lender gets paid until your name is off the loan by continuing to monitor the payments. Remove yourself from loans: it’s best to separate yourself from shared loans that your ex is supposed to repay. Even if you trust the other person completely, they could die or become disabled temporarily, and the debt would be back on your shoulders.

The most important thing to do during a divorce is to manage your debts proactively and don’t just assume they’re being paid off. You need to keep an eye on things as long as your name is on the debt, and loans may be around for many years after your divorce.

One of the best resources for keeping an eye on your credit score and report is creditkarma.com. Credit Karma is completely free and you'll even get alerts when new items are added to your report; spot fraudulent use of your identity quickly.

We recommend creditkarma to all families going through a divorce, in order to cross compare the credit reports and ascertain if there are any joint accounts or open lines of credit that may need to be closed or removed.

Three Options to Deal with Debt in a Divorce

There are really three options when it comes to dealing with the debts of a marriage with respect to the decisions about dividing the marital debt:

1.    You can agree to pay off debts now.

If you and your spouse have cash or if you have property that you can sell for cash, paying off your debts now is simpler, cleaner and safer for both of you. If you can work together to solve the credit issues, sometimes that is the best way. There will be no uncertainty about the eventual cost of the debt, and you both know exactly what you have as you begin your new independent life.

2.    You can agree that either you or your spouse will be responsible for the debts and get other assets to compensate you.

If you agree to be responsible for a debt, you still need to know exactly what you need to do to get the debt satisfied. You can decide now or later whether you want to liquidate property to produce cash to pay off the debt, and you can decide as you go how many adjustments you want to make in your own lifestyle to allow for repayment.

If you agree that your spouse will be responsible for a debt that the two of you share, be warned that you are vulnerable. You or your lawyer may insert some type of indemnity agreement to the effect that your spouse agrees to hold you harmless for the repayment of the debt. The problem is that the indemnity agreement is binding only between you and your spouse, not on third parties.

This means that when your spouse agrees to pay off the joint VISA card debt and agrees to indemnify you for it, if your spouse later doesn't pay off the debt, the credit card company could come looking for you and make you pay the debt. Sure, the indemnity gives you a claim against your ex-spouse, but who wants to have to sue an ex-spouse for a debt? It would be best to take care of it much earlier in the process.

3.    You can agree to be equally responsible for the debts.

If you agree to share equal responsibility for payment of a debt, this is potentially the worst option. You remain entangled and therefore vulnerable. You increase the extent to which you have to continue communicating with your ex-spouse about money after the divorce. And in addition, you still run the risk that one of you may take advantage of the other.

Here are some resources that can help you manage your debt and bank accounts:

ReadyForZero https://www.readyforzero.com helps you figure out the best way to pay debt off. They gather your debt info in one place and securely helps you crunch the numbers. It looks pretty good.

Undebt.it https://undebt.it Offer personalized plans for paying off your debt after analyzing all your debts, account balances and interest rates. They give you options, and you can pick which payment plan and debt strategy works best for you. Here you can also view how much principal has been paid and how much interest you will save by utilizing your new payment plan. Their services are free and they'll never ask for a credit card.

FileThis https://filethis.com is helpful for anybody, however this is especially helpful before or after a divorce. This software is pretty awesome, in that it becomes your smart assistant that creates bill reminders and helps you pay them on time, every time.

Collaborative Divorce Attorney and Divorce Mediator Angela Green

Attorney Green works exclusively with couples or parties who would rather spend their energies and resources working constructively to resolve their differences rather than "winning the fight." She helps spouses and litigants reach comprehensive, well informed agreements without the emotional and financial toll of court-based litigation. She has mediated hundreds of cases ranging from simple to complex financial matters, businesses, and high net worth cases.