Paying off debt is never a fun experience, and this can be especially troublesome when the debt was generated by a former spouse. There are specific legal rules that apply to who can and cannot be petitioned for the payment of any outstanding debt at the time of a divorce.
Most debt is considered property by the court, even though the existing debt is still a liability. Some states are equal property states and others are equitable property states, so the debt is assigned according to the state guidelines.
For instance, some state laws are silent concerning absolute strict rules concerning distribution of property, but some court systems have clarified the law through established precedent. In some cases, an ex-spouse will rack up credit card debt after the divorce is final, only to have bill collectors make harassing phone call to their former partner.
This can lead to a tremendous amount of stress and frustration for the harassed individual, as they are making strides to move on with their life, especially if they have remarried.
Having a clear understanding of your legal rights post divorce is extremely important and can aid you in combating a debt collection scenario. So, what is the process of discharging a spouse’s debt after a divorce?
Court Debt Assignment
For example, states like Nevada are equal property states. This means that debts are considered community property and they are distributed equally, with some exceptions. The first exception is debt acquired before a marriage.
Buying a home is perfect example. Many divorce attorney Las Vegas firms are well versed in this matter and help countless couples maneuver the difficult terrain of separating assets.
Spousal Liability Waiver
Though this is not as well known, it is possible for spouses to sign an agreement that, upon the dissolution of the marriage, the couple’s debt will be separated and treated as that of each individual. This is reminiscent of a prenuptial agreement.
In addition, this option is also available when addressing particular stores or lenders, stating that all liability will belong to the signer of the arrangement and will not transfer to the non-signing spouse. For individuals seeking to enact this particular right, it is advised that you seek legal consultation to make sure all parties are fairly represented.
A divorcing spouse is not liable for assumption of debt if the home was purchased by one party before the marriage. This debt and property belongs solely to the purchaser. Debts accumulated during a marriage, including credit debt, are community property and the court distributes this debt equally, regardless of who generated it.
Appealing a Court Decision
Final court debt determinations can be appealed by either spouse just as in any other court case, and one way to lower the amount of debt is to request a reassessment by a higher court. This is common when the couple has considerable wealth as well as debt and each debt is considered on its own merit.
Debt, like property, can be a negotiation point in an amicable high net worth divorce settlement, especially in cases where one party keeps all assets and pays the other spouse off, as well as assuming some level of debt in many cases. Bargaining a debt assignment down is a good method of eliminating it before it can even be assigned.
It is vital to understand what assets are considered separate, especially when it comes to creditors and debt. Some examples of these assets are legal awards and compensation from car accidents, personal injury, or worker’s compensation.
Also inherited property and gifts given by a third party to either spouse may be considered separate assets. This is just one example of how complicated this matter can become. However, the more you know about your legal rights, the better.
Bankruptcy may be the most effective method of getting rid of spousal debt, depending on the chapter filing. Chapter 13 allows more debt reduction, including absolute discharge of unsecured and non-prioritized debt in some cases, but regardless of whether the bankruptcy is Chapter 7 or 13, the debt will always be lowered considerably.
In some cases, a second spouse can be liable for a portion of prioritized debt if it includes child support or alimony for the first spouse. Of course, there are some disadvantages of a bankruptcy because of credit rating damage, along with a seven-year statute of limitation restriction to file again at a later date, but the total debt will still be smaller in most cases. Divorcing couples who have already filed bankruptcy obviously do not have this option.
The most effective method of getting rid of any remaining marriage debt is making arrangements to pay the debt off and still maintain an acceptable credit rating. A good credit rating is essential to living well with a significant degree of respect and dignity.
Additionally, it shows a willingness to work with creditors who will often negotiate a smaller amount for a written contract setting guidelines for repayment. The divorce alone is bad enough within itself and walking away from the remaining debt can create more problems. Regarding debt, one thing is for certain about marriage, which the state views as a binding business contract. Marriage is much easier to get into than it is to get out of.