YEARS AGO I saw a bumper sticker that said: “Love is grand. Divorce is $20 grand.” This saying always springs to mind when I hear couples headed for divorce because of financial troubles. Sadly, divorce not only does not solve money troubles, it usually makes them worse.
A settlement agreement is between the parties to the divorce. It does not apply to third party creditors. This means, while you and your soon-to-be-ex-spouse may agree…
· He will take this half of the credit card debt and she will take this half; or
· She will continue to live in the house and he will no longer be responsible for the mortgage; or
· He will keep the car he bought when he was going through his mid-life crisis (that is in both your names), but he will have to pay the bill,
…it doesn’t mean your creditors will go along with this plan.
If your spouse decides he or she is not going to pay the debt he or she agreed to pay, the creditor most likely will seek remedy not just from the “responsible” party (according to the settlement agreement), but from the other spouse as well—and the creditor would have a legal right to do so because your agreement with the creditor precedes your marital settlement agreement and, thus, has priority.
Your recourse, then, would be to petition the court to enforce your marital settlement agreement against your spouse. That, of course, can get costly by the time you calculate attorneys fees and court costs (on top of what you may have already spent for the divorce itself). If your spouse doesn’t have the money to pay the debt, as a practical matter, you’ll still wind up paying the bill if you want to protect your credit.
There’s also the issue of increased household expenses. Where once you were paying only one mortgage and sharing other expenses, now there may be twice the expenses to cover with the same income. Also, your assets now will need to be divided which could lead to selling the family home for less than it may be worth in a better market climate, or dividing up retirement assets, investments, bank accounts and personal property (some of which may need to be replaced when you move).
If one spouse files bankruptcy, which often is the case following divorce, especially since the recent recession, the other spouse may be held responsible for expenses incurred during the marriage. This could lead the second spouse to file bankruptcy as well.
If your financial situation is so dire you think one or both of you may need to file bankruptcy, it may be better to do so together while you are still married, and then to proceed with the divorce after the bankruptcy case is resolved.
Remember, though, some financial obligations are not dischargeable in bankruptcy—like child support, alimony, taxes and student loans.
If the primary reason for the strain on your marriage is because of money, you might be better off to first seek financial counseling to come up with a plan to resolve these issues, and couples counseling to deal with all the emotions and behaviors surrounding your finances.
If that still doesn’t work, and you and your spouse agree divorce is the best solution, make sure you have a thorough understanding of your finances and that you fully disclose this information to your attorney so your attorney can provide the best advice on how to move forward, preserve your assets, and minimize your liabilities.
Sandy Ambrose is a Martindale-Hubble AV-rated family law attorney with more than 30 years experience working with men and women who need to protect themselves and their finances through the divorce process. Call Ambrose Family Law today andschedule an appointment with Ms. Ambrose to discuss the facts in your particular case to determine how our firm can help you.