Make a List of Your Existing Debts
Often couples approaching divorce have individual or joint debts. Most people have home mortgages and/or home equity lines of credit. In addition, many couples have credit card debt, student loans and other liabilities. In the process of divorce mediation, the husband and wife must decide how to share their liabilities as well as their assets.
A good starting point is to obtain credit reports for each party
You need to supply your divorce lawyer with a complete list of your debts. While you might think you are aware of all of your outstanding liabilities, sometimes there are debts that you have forgotten about. You also might think a particular liability is in the name of only one party when in fact the other party is named on the debt as well. This often happens when one party obtains a credit card and the other party is an authorized user. Another concern is the possibility of errors on your credit report. This is all too common and it is better to rectify the situation as soon as possible.
You can get a free credit report by contacting one of the following agencies:
• Trans Union – www.tui/transunion.com
• Equifax – www.equifax.com
• Experian – www. Experian.com
After consulting your divorce attorney, cancel joint accounts
While parties contemplating divorce cannot unilaterally close bank accounts or credit cards, they can do so by agreement. While engaging in the divorce process, you should discuss whether it makes sense for you to begin to unwind your financial entanglement by creating separate bank accounts and credit card accounts. Consult with your divorce lawyer before making any changes to be sure you are not violating any court orders.
Sharing of Existing Debts
Generally, debts incurred during a marriage are legally joint liabilities to be shared, even if they are in the name of only one party. In a collaborative divorce process, however, parties may consider whether one or the other party should be solely liable for a particular debt regardless of who is legally the borrower. If a husband and wife conclude that one party should be responsible for a particular debt that is in joint name, they can try to get the creditor to release the other party from the liability. Speak to your divorce lawyer about whether this is an option. Creditors are hesitant to let one party off the hook for a debt. A better option would be to use available assets to pay off any joint debts or refinance them in the name of the responsible party alone. With the aid of your divorce attorney, you can take into account the need to pay off debts when you divide your assets. When these options are not feasible, a common solution is to give one party the obligation to pay a debt, and provide for such party to indemnify the other party against loss. It is not a perfect solution, but sometimes it is the only option available. Your divorce attorney can craft language that will protect the party with liability.