We live in a time when most everyone has some level of debt, whether it be student loans, credit card, auto, home, medical, etc. The big question is, can you get a divorce with debt…the short answer is ‘yes’; however, you should be aware of a few key factors that come into play when debt is part of your settlement.
As you enter divorce negotiations it is important to disclose all your marital debt and most importantly to understand who “owns” or whose name is listed on the debt. As you split debt, one key post-divorce task should be to ensure that you and your spouse remove each other from the debt the other will carry forward. A lender does not care that a divorce has taken place. If your name is on a loan that your ex-spouse is not paying, then creditors can and will come after you, and it will affect your credit as well.
There are situations, especially with the primary home, where one spouse may be unable to qualify to refinance the home. If your name is remaining on the primary home, but you will no longer have access to that asset, you want to be sure that safeguards are put in place within your divorce decree that offer protection for you in the event your ex-spouse is unable to pay the mortgage. Working with a financial neutral, like a Certified Divorce Financial Analyst at Next Step Divorce Solutions, can help guide you and your spouse to develop a creative settlement solution that would address these types of situations.
If possible, it best to begin a post-divorce life debt free. From the onset that may seem impossible but with the right creative solutions that could be a reality. There are some assets that waive tax penalties if transferred in a divorce. An example are transfers made within a Qualified Domestic Relations Order (QDRO). You are allowed a onetime withdrawal from a 401k or other ERISA plan, penalty free before 59 ½, if that asset is transferred by a QDRO. Another possible example we often don’t consider is utilizing the equity in the home. It is not uncommon that what is often the two largest assets in a divorce, retirement plans and home equity, are considered locked up, but in the case of divorce those assets could become accessible.
Divorcing with debt is possible, and with a Certified Divorce Financial Analyst on your team we can help you to navigate the potential pitfalls and payoff solutions in your divorce settlement.