Divorce and Debt Series: What Happens to Joint Debts in a Divorce?

May 17, 2018

In 2016, “Tara” divorced her husband. But what she didn’t separate from was their joint debt.

During their marriage, Tara’s ex-husband David had taken on more and more debt, even opening credit cards in Tara’s name and one credit card where he was the secondary cardholder, but Tara was the primary. The cards paid for a new flat-screen TV, high-end stereo system, and laptop computer. When they separated, David took those possessions with him. But Tara was left with the debt.

When it comes to divorce and debt, sadly Tara isn’t alone. When you go through the legal process of getting divorced, generally all of your assets are included in the proceedings — and all of your debts.

And then there is “Travis”. During his marriage, he and his wife Megan had opened up a joint line of credit. After separating, Travis asked his ex to take his name off of the line of credit, but she couldn’t afford to make the repayments on her own. Travis then received a phone call from his bank notifying him that the payment was due tomorrow.

When getting a divorce, it’s common for spouses to work out a plan to allocate debt obligations. For example, one spouse might be responsible for paying the joint car loan, while the other takes over the joint credit card bill.

The problem is that no matter what the agreement between the spouses, it doesn’t affect the liability to a creditor. If a payment is missed, a creditor isn’t going to pursue only one of the spouses. Creditors want their money no matter what, from either name on the account. If the husband failed to pay off the joint credit card, the credit card company could still go after the wife for the outstanding balance.

A divorce settlement assigning debt – even a settlement included in a court judgment – cannot change a couple’s original joint obligation to their creditors.

If you’re struggling with divorce and debt, what can you do about it?

  1. Be Proactive

Burying your head in the sand isn’t going to fix a bad situation. You need to take stock of your current finances and joint debts. If you haven’t already done so, create a list of all financing shared between you and your ex-spouse. What debts are still outstanding and how much is owed? Remember that even if a settlement has been made in court directing who should assume what liabilities, the settlement doesn’t necessarily apply to creditors. If it isn’t being paid and it’s held jointly in your name, they can still come after you.

If you still have open joint debts (like a line of credit) with your name on it, contact your bank to inquire about making it a deposit-only account. Cancel any joint credit cards and find out the outstanding balance. Creating a plan will help, should anything go awry.

  1. Don’t Create More Debt

When your financial situation is uncertain, the last thing you want to do is make it worse. This is the time to make a budget and figure out how much you need to meet your monthly bill obligations. If you’re not making enough income, then it’s time to look at other options to either eliminate debt or create more revenue. Don’t fall into the trap of going for quick-cash options like payday loans or opening more credit cards. This can often backfire and drag you further into debt.

  1. Talk to a Financial Professional

You should absolutely talk to your lawyer, but when it comes to joint debt, a Licensed Insolvency Trustee can stop creditors and help you figure out a way to deal with any remaining debt.

Getting a divorce is undeniably stressful and emotional, but your financial situation doesn’t have to be. You don’t have to navigate joint debts on your own.

Contact Fuller Landau Debt Solutions today for a free consultation. Call (416) 927-7200 or visit www.fullerdebt.com.