Navigating finances during a divorce can often be a complex undertaking. Beyond the emotional strains, considerable financial decisions must be made, particularly when it comes to debt. Deciding who bears responsibility for marital debts and how they are divided may play a significant role in both parties’ financial futures.
While many people think of the property division process as dealing with marital assets, this process also requires you to determine how debts will be divided if you and your spouse have decided to go your separate ways. There are several ways that debts can be handled during the divorce process. You must consider them all and determine the best option for your circumstances. A few of the more common approaches to this reality are explored below.
Selling assets to pay off debts
Selling assets to pay off joint debts is a viable strategy during divorce proceedings. This ensures that both parties start their separate lives without lingering joint debt and can simplify the division process. For instance, if there’s a jointly owned property with a mortgage, selling the property and using the proceeds to pay off the mortgage allows for a clean break. If the assets can’t cover the entire debt load, covering the larger debts with the proceeds is likely a good idea.
Balancing debts and assets
The division of debts should generally be considered in conjunction with the division of assets. For example, if one spouse is awarded more property or assets, they might be assigned a more significant portion of the marital debt to balance things out. Alternatively, if one party gets a substantial amount of the debt, they might also be awarded more assets as a form of compensation.
It’s essential to note that even after a divorce decree is finalized, lenders can still hold both parties liable for joint debts incurred during the marriage. It’s advisable to close joint accounts, refinance loans or take other steps to separate financial ties as a result. Your credit history can be negatively impacted if your ex doesn’t pay their assigned debts. Because of this, it’s crucial to think carefully about how you’ll handle the division of debts during divorce so that your interests remain protected both now and going forward.