In addition to dividing up assets during a divorce, spouses need to untangle the web of debt that they incurred together. When both names are on a credit card or other form of loan, then both spouses generally share liability. But, what if a credit card is in just one spouse's name? Or what if the spouse owns a business and the credit cards have been issued to that business? These are the type of complex issues that can arise during the divorce process.
A lot of the outcome hinges on where you live. Louisiana is considered a community property state, which means if debt (or assets, for that matter) is accumulated by one individual during the marriage, the other spouse is generally on the hook for it.
However, the agreement between the debtor and the creditor also plays a role in deciding the outcome. If just one spouse officially assigned on to an account for a credit card or other type of debt, they alone are on the hook for the debt in the eyes of the creditor.
Those that have been married for a long time might need to contact creditors to determine who signed up for the loan. Often, spouses forget who is legally responsible for certain debt.
Still, even though one spouse might be responsible for the debt, the creditors can receive a judgment and then try to seize jointly owned assets. So, spouses that are not directly responsible for certain types of debts could still be negatively affected by it.
Spouses should make sure that their assets are in their name and theirs alone so that in this case, they do not lose anything of value.
As you can tell, property division is not the only potential headache during divorce. There are many financial factors to take into consideration to avoid being penalized for someone else's fiscal mistakes.
Source: foxbusiness.com, "Will my Husband?s Business Card Debt Hurt my Credit After Divorce?" Elaine Pofeldt, Apr. 25, 2013