While asset division is a major concern for couples, ending a relationship also brings about the need to divide any debts incurred during the marriage. In a perfect world, each spouse takes responsibility for paying back debts they created and any debts in their own name.
However, accountability for debt is not always top priority, leaving spouses liable for joint debt. A divorce decree should address the debts each spouse will need to pay after the divorce is final.
Finding a workable solution outside of the courtroom
New York is an equitable distribution state. This means the division of both assets and debt may not be perfectly equal, but it should be fair. When assigning debt responsibility, New York courts generally assign marital debt to the spouse who incurred it.
Agreements with creditors
Much like clicking “I Accept” without fully reading a terms of service agreement, many credit card users and borrowers gloss over repayment agreement obligations to creditors. However, the original agreement with a bank or creditor supersedes a divorce decree. Failure to address debt repayment during a divorce poses a serious credit risk.
Financial institutions simply want payment for money borrowed to debtors. The bank will not care that a judge ordered your ex-spouse to pay back a portion of a debt and will come after you for payment if the spouse defaults. On the flipside, this also leaves your spouse on the hook for any debts you do not pay.
Actionable steps to protect yourself
If paying off all joint debt before a divorce is not possible, you can still take actionable steps to divide debt and protect your credit. For joint accounts, have the portion of the balance each spouse is responsible for paying transferred to new accounts in each spouse’s name. Remove a spouse who is an authorized user from any accounts in your name. If possible, refinance major loans, such as home or vehicle loans, into the name of the person keeping the asset.
Courts do not automatically make property and debt division decisions. Spouses can reach a debt agreement first. Courts only step in to make decisions about marital debt and asset division when spouses fail to reach an agreement. Don’t a divorce derail your credit score; address debt repayment during the separation process.