Debt Questions During Divorce
If you are anticipating divorce, you are no doubt apprehensive about the division of your marital estate. After all, your future financial security depends greatly on the equitable distribution of your property. However, if you are like many of our clients who were hurt by the housing crisis or the stock market collapse circa 2008, you should also consider how a court might allocate your debt. That debt could be a greater impediment to your financial future than any adverse ruling the court could make about your assets. It may take thoughtful preplanning on your part to escape a divorce debt bomb. So, here are a few tips on preparing your debt load for the divorce process:
- Know what you owe. You may be paying credit card bills, a mortgage, car loans and student loans without ever taking a look at the big picture. What exactly is the sum total of your indebtedness? Make a complete inventory of your obligations and check it against your credit reports.
- Know what YOU owe. Not all debt is equal, insofar as distribution is concerned. Look carefully at the bills to see whether these charges apply equally to you and your spouse, or if you could be held solely responsible.
- Put a stop to new debt. Tear up your credit cards, especially if you have a spendthrift spouse who might run up new bills on a joint account. However, don’t make this move unilaterally. Have a serious talk about finances and the need to get your debt under control. You do not have to tip your hand about wanting a divorce.
- Start paying strategically. If you are a savvy consumer, you are probably paying down your higher interest accounts, such as credit cards, more aggressively than your lower interest debts, such as your mortgage or student loans. But that could mean you are paying down your marital debt more aggressively than the debt you hold individually. That’s a good deal for a dependent spouse, who doesn’t have much individual debt. But if you are the primary earner, you are putting yourself at a disadvantage. You are paying down the pile of debt the court could distribute “equitably” while leaving virtually untouched the debt you’ll have to bear alone. Start using your earnings to pay down your own debt now, because it won’t get any easier after your divorce, especially if you have to pay alimony and child support.
Once you or your spouse files for divorce, there is little you can do to change your debt profile. In fact, certain obligations which you know belong to your spouse may not have a sufficient paper trail to convince the court they are separate debt. You may be in a weak bargaining position as you attempt to negotiate an agreement on whose debt is whose.
For practical advice on preplanning for divorce, contact a knowledgeable family law attorney at Jakubowski, Robertson, Maffei, Goldsmith & Tartaglia.