A divorce usually causes havoc on everyone (most of all the children), and can have long lasting effects. One of the common misconceptions in a divorce, however, is that of debt allocation, and who is ultimately responsible for the different debts incurred by the married couple.
During a marriage, most people will incur certain debt, whether it is for a car, a house or credit cards (among other things). When a couple incurs the debt, usually both will sign the promissory note or the agreement. This makes both of them equally liable to the bank, credit card company or other creditor for that debt. When the couple obtains a divorce, the court will allocate (or the parties will agree) that one of them becomes responsible for some of the debts, and the other is responsible for the rest of the debt, or both are jointly responsible for some of the debt. This becomes part of the divorce judgment of the court.
Many people believe that if the other party is responsible for a certain debt under the divorce, that they no longer are responsible to the creditor for that debt. This is not the case. The bank or creditor entered into an agreement with both parties, and they are entitled to look to both parties for payment, regardless of the divorce judgment. The creditor was not a party in the divorce, so the divorce court cannot bind the creditor. The creditor’s rights are not affected by the divorce. Thus, a person who thought they would not be required to pay a certain debt after divorce, may find himself or herself paying that debt. Such a person may have a right to file a contempt motion against the ex-spouse who was obligated to pay under the divorce judgment, but that will not affect that person’s obligation to the creditor.
Continuing to be liable on the debt of the marriage results in two problems. First, it becomes particularly worrisome in a situation where the ex-spouse who is obligated to pay loses a job and can’t pay, moves away and doesn’t pay, or files bankruptcy. A creditor is going to take the path of least resistance to getting paid. In those situations that means suing the spouse that still is employed or that they can find. Furthermore, it may mean suing the spouse that did not file bankruptcy. (If the obligated spouse files bankruptcy, the other spouse may not even be able to file a contempt motion!)
Second, the obligated spouse may be continuing to pay the debt as required under the divorce judgment, but the non-obligated spouse’s credit rating is still affected. For instance, if the debt is a mortgage on a house, the non-obligated spouse’s ability to borrow may be reduced because the mortgage obligation still appears on the non-obligated spouse’s credit report. It may be more difficult to obtain financing for a new house or car because of the old marital debt. Many times discussions with the lender will alleviate their concerns, but it will take time and delay the desired financing.
One should be very careful during and after a divorce when it comes to debt. Your obligation may not be over until your ex-spouse’s obligation is over.
This article is meant to be informative only, and is not intended to be legal advice for any person. It cannot be relied upon for any specific situation. You should consult with an attorney and describe the facts of your particular situation and obtain his or her advice before taking action in a specific case.
Ronald G. Aseltine, Esq., practices law at 42 Main Street, Livermore Falls, ME. He also has an office in Wilton.