What Happens to Debt in a Divorce?

Debt in a Divorce

Pennsylvania is an equitable distribution state, which means that assets are divided fairly for both parties in a divorce. It is important to note that the division is not necessarily even. Owing to this, many divorcing couples may wonder how marital debt will be handled. Much of this depends on whose name is on each debt and if it was acquired before or during the marriage.

Dividing debt is not always clear-cut because it can be commingled. For example, many people will have credit cards in their name before they get married. However, if they used that credit card to purchase items for both parties, such as furniture, it may be transformed into marital property. Commingling debt is fairly common and must be considered in divorce proceedings.

What are Common Forms of Debt?

Deciding what is marital property can be complicated because there are many different forms of debt. Spouses should take time to review all of their debts and how they can be affected by a divorce. Some common types of debt are listed below.

Credit cards: In many cases, each spouse will have received multiple credit cards prior to the marriage. A lot of couples also jointly purchase credit cards. Preferably, the primary debtor or the account owner will pay off the debt. However, this is not always the case because one spouse usually does not have incentive to pay off the credit card debt after divorce. One party will have their credit affected, but the other may not.

Mortgage: Most couples still have mortgages to pay. Therefore, it will have to be determined who is responsible for the payments after the divorce.

The spouse who was awarded the property will take on the mortgage. If both spouses are on the mortgage, the party who was not awarded the property signs a Special Warranty Deed. This assigns interest to the other spouse. The spouse responsible for the property then signs a Deed of Trust to Secure Assumption agreement to keep up with the mortgage. If they do not pay the mortgage, the beneficiary listed on the Deed of Trust to Secure Assumption can pay the balance or foreclose the property.

Auto loan: An auto loan is a secure debt, which means that the person responsible for that property is accountable to make payments. Sometimes, the loan is in one spouse’s name, but the other party possess the car. The party who has the car can refinance the auto loan with their name.

Auto loans in a divorce are difficult because the spouse responsible for the payments may not continue to make them if they do not have possession of the vehicle. If the other spouse is a cosigner or is on the loan, they may be responsible for full payments.

What Should I Do if Debt is Involved in My Divorce?

Although divvying up debt is complex, both parties have options available to them. Some ways to dissolve debt include the following:

  • Bankruptcy: Bankruptcy is an option because it will eliminate the debt; however, there are many factors to consider when deciding whether this is the best option. Bankruptcy can affect both spouses, and it greatly impacts credit. It can also delay divorce proceedings.
  • Remove name: A person can request loan companies to remove their name because of the change in income and the divorce. However, this is unlikely. Most lenders will not remove a name since the loan was approved because of both spouses’ income and credit card histories.
  • Pay off debt: Ideally, all debt should be paid before the divorce is finalized. This will eliminate most related problems. However, many forms of debt are high and cannot be paid off quickly.
  • Mediation: A divorcing couple can go through mediation to discuss the distribution of assets and debt. This can minimize legal fees and solve matters quicker. An attorney can advise their client throughout the mediation and divorce process.

Delaware County Family Law Attorneys at the Law Office of Deborah M. Truscello Help Spouses Divide Assets and Debt in Divorce

Solving divorce problems is often complicated, especially if substantial amounts of debt are involved. If you need help with your divorce, speak to a Delaware County family law attorney at the Law Office of Deborah M. Truscello. Call us at 610-892-4940 or contact us online for a free consultation. Located in Media, Pennsylvania, we serve clients throughout Bucks County, Chester County, Delaware County, Lancaster, Montgomery County, Norristown, Philadelphia, Reading, and West Chester.

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