Splitting up the financial debt during divorce can be a daunting task.  There are the mortgages, car loans, credit cards, overdraft accounts with the bank, student loans, and the list goes on.  The inherent danger is how the debt was acquired in the first place.  If both parties assumed the debt with both obligated to re-pay, then splitting the debt up leaves each other vulnerable to the ability of the other to pay.  Credit cards can be misleading as well.  You can simply add another signer to your card and that could make them also legally responsible under the terms of the credit card agreement to re-pay.  Just because you file your divorce agreement in court and either spouse has agreed to assume responsibility for re-payment of debt, this is not necessarily honored by the creditor.  They will still collect from all original debtors under the original terms.  Take a mortgage for example.  Just because one spouse gives control of a property (in ownership) to another spouse, does not mean that this spouse is no longer responsible for the mortgage.  If the spouse who acquired ownership in the divorce is late on payments, decides to short sale, or worse gets into a foreclosure scenario, the other spouse will be negatively impacted on his or her credit report.  You also have to consider what would happen if either party files bankruptcy.  Who do they have to collect from now?  You may not own the house anymore, or the car, but you could still be negatively impacted by the default on the loan.  Work with your attorney and divorce financial planner to carefully look at how each debt was aquired, and contingency plans if either spouse defaults on payments.

It might be a good idea to subscribe to a service that provides a report each time one of the credit reporting agencies receives an update.  Another thought is to stipulate in your agreement that you must be notified in the event there is going to be a late payment on a joint debt.  That way you can decide if you want to pay the payment before it negatively impacts your credit report.  Cultivate your soil carefully and remove as many weeds as possible, the growth of your financial future depends upon it.

Divorce and Creditors

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