No matter how much you have planned, the financial fallout from a divorce is always devastating. When preparing for a divorce, one of the first questions that come to mind is “who is responsible for credit card debt and student loan debt after a divorce? It’s normal to have joint credit cards and loan accounts when you are married. But, as you plan to get separated, figuring out these accounts should be your top priority.
Dividing assets is less complicated than dividing the debts as it comes with future monetary implications. Besides, dividing debts is more about fairness and ability to pay than equality.
First of all, you need to know there are two kinds of debt you will be dealing with, one that is incurred after separation but before divorce and another even before separation. Let’s see how the court handles a debt incurred after the separation but before the divorce.
This kind of situation can be tricky as different states handle these cases differently. For instance, some states would not consider separation and so the debt will be handled just the same way as if you were living together cordially. In other states, the court takes into consideration the time frame when a couple decides to separate and the debt is divided accordingly.
Usually, the debt undertaken is the responsibility of the account holder. In case, your spouse has taken the loan on his/her individual account then the repayment of the loan is their sole responsibility. For joint accounts, however, it can be a problem, and the court may suggest dividing this debt equally or at least some portion of it.
Leave alone the judiciary, even for the creditors, the person who has their name on the credit account will be responsible for paying back the loan.
Suppose, you are separating, it would be wise to first know the state law in which you will be contesting your case. Furthermore, you should contact your credit card company and have the access removed for your spouse.
If the credit card is in your name, it is more likely that you will be responsible for paying all the debts. However, in the states where every asset and debt is considered to be community property, such as Washington State, the situation will be different. For instance, if the credit card is being used by both spouses after marriage, then both of them are responsible to pay the debt equally. The states with Community Property law are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Washington, Washington, and Wisconsin.
In cases where you have a joint credit card, the decree is rather simple. Both spouses will be held accountable to pay this debt. So do not assume that just because another spouse was spending a lot, they will have to pay a larger sum. However, there have been cases where one spouse is not capable of paying the debt due to unemployment, sickness, or due to other bigger responsibilities. For such exceptions, they are ordered to pay a smaller percentage of the whole debt.
If you are planning a divorce, it is better to close all the joint credit cards so that your spouse does not run up the balance leaving you liable for it.
Another case of credit card debt is – when there’s a co-assigned credit debt. A co-signed credit card is the one, which you had received for your spouse because they are not able to have their own account and so you take the responsibility for the account, making your spouse the primary user. Once again, the creditors will hold you responsible for paying this debt.
As far as the judiciary is concerned, the Community Property states will be still divided in the debt 50-50. But in other states, the judge will take into consideration some other points too.
Your credit score will only be affected if the card is in your name and you skipped the payments and ran up the balance together. Even if the court orders your spouse to share the debt, and the card is in your name, any kind of default on the account will affect your credit report. That is why it is advisable to close all your debt accounts before getting into a divorce. Besides, you can talk to a divorce attorney to best understand the case and avoid the drawbacks that come with it.
What happens to a student loan in a divorce process is completely dependent on which state you live in. Suppose you are living in a Community Property State, (such as Washington) both of you will be equally responsible for the student loan repayment. It doesn’t matter in whose name the student loan was obtained.
Even if you were married in an equitable distribution state but now living in a Community Property State and contesting your case in the same state, you are more likely to bear half of the debt payment.
However, if you are contesting your divorce in the equitable distribution states, the judge determines whether the loan was used for covering living expenses or for private tuition. You will also have to prove how much each of you is responsible for. Depending on all these factors the court will decide who is responsible for repaying the student loan.
If you took a student loan and your spouse is the cosigner, then it doesn’t matter if you are getting divorced, they will still be liable for it. Even if you try to release your spouse from the cosigner’s responsibilities, very few lenders will allow you to do so. Besides, if you’re allowing your spouse to be released from this loan then you will have to prove to the lender that you are capable of paying the loan yourself.
Different lenders will put different terms in front of you, for instance, some would check if you have paid the previous 12 installments. On top of it, they would ask for a good score and a stable source of income for allowing a spouse to get released from cosigner obligations.
Even if your lender is allowing you to process this release, do not just assume that they will free you from the obligation. There are a few cases where a co-signer is released from his/her duties. After all, for lenders, it is good if there is one more person they can hold liable for paying the loan.
The only way to override the community property state laws is to have a prenuptial agreement regarding the student loan. Even if you live in a Community Property state, the court will have to consider the prenuptial agreement.
If the agreement states that it’s your sole responsibility to pay back the loan, then you cannot make your spouse help in the debt repayment. It is always recommended that the prenup is prepared with proper legal representation as there have been many cases where prenups do not stand a chance in the court just because they were not prepared legally.
Whether you are preparing a prenup in Washington, or want to settle your debts before divorce, you must do it all in the presence of a good lawyer. A good divorce attorney will not just guide you on how to keep your finances in place while going through a divorce, but will also equip you to avoid the obligation of debt repayment.
If you are going through a divorce and you’re concerned about how your credit score will be affected by debt or student loans, it’s best to talk to an experienced Washington state lawyer who understands these kinds of cases. While it’s true that, as a community property state, the court will likely just divide your credit card debt and student loan debt 50/50, it’s also true that an experienced lawyer can help you negotiate your debt and possibly offset against support obligations you might owe in the form of child or spousal support. In addition, an attorney can help you pinpoint the date of separation, which might help relieve you of debt since you are not responsible for debt incurred after the date of separation.
Call us for a free consultation so we can help you come up with a game plan to deal with your debt.
Related content: The Unique Challenges of a High Net Worth Divorce in Washington
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