When married couples divorce, their debts and assets are split up according to a set of rules that vary by state. In Minnesota, for example, property and debt division is governed by a principle known as equity.
In basic terms, this means that the spouse’s debts and liabilities should be divided in a way that is fair under the circumstances, which may or may not mean that they are split equally between the two. Since fairness is obviously a highly objective standard, it is a good idea to get help from an attorney who can advocate on your behalf during this process.
One important thing to understand when dividing up debts during divorce is that your creditors generally won’t take your divorce agreement into account. Thus, if you and your ex-spouse took out debts together and agreed to split them up during the divorce, you can still end up on the hook for whatever he or she fails to pay back.
Not only could this situation potentially cost you a lot of money, but it could also be harmful to your credit score. This means that it is important to be strategic in how you handle shared debts during your divorce. Your divorce attorney can work with you to identify all of the debts you may be liable for and create a plan to protect your long-term financial interests.
For example, depending on the circumstances, you and your lawyer may decide that it is a good idea to pay off all of your joint debts up front rather than split them up. In other situations, it may be possible to move shared debts into one person’s name using a balance transfer. To prevent any new debts from being racked up during the divorce process, your attorney may also recommend putting a hold on any shared credit cards or other accounts.
Source: Fox Business, “Debt and Divorce: 5 Steps to Make a Clear Credit Split,” Dan Papandrea, July 14, 2014