Allocation of Debt during Divorce
Administering and allocating accumulated debt is one of the most difficult issues for divorcing couples in Illinois. Many don’t realize it is not as simple as transferring the debt from one person to another. Divorce does not change existing contracts with third-party creditors (a credit card company, for example). Even if the court assigns a lump sum of debt to the husband upon stipulation of the divorce settlement, the wife is liable for any outstanding payments because her name is on the joint account. Both parties still assume responsibility for the debt, regardless of the impending divorce.
What is Marital Debt?
Debts are allocated between the two parties as a part of the property division phase of the divorce. In order to qualify for the division, the obligations in question must be classified as “marital”. This includes most charges sustained before and during the marriage, regardless of which spouse’s name appears on the account. All other debts are considered “separate” and remain the responsibility of each given party.
How are Credit Cards Handled?
Illinois has specific rules for assigning responsibility for credit cards. If a joint credit card is opened during the time of marriage, the debt acquired is classified as a marital obligation. Existing cards and their balance incurred before the marriage will remain the responsibility of the person whose name is on the card.
However, problems can arise if purchases were made on a card that only listed one spouse’s name. When that happens, the court will look at who benefited from the purchase and assign it to one spouse, or both as a marital debt. It is important to remember that division will not always be equal, but the court does take into account the marriage length, any specific needs that each party has, amount of spousal support awards, and the nature of custody awards before making a final decision.
What are the Options for Handling Divorce Debt?
There are three ways to resolve debt issues in a divorce: pay off the debt, refinance the debt, or sell property to pay off the debt. An important step in finalizing a divorce is determining whether each party qualifies for a new mortgage or a refinance or personal loan to handle existing debt. If a couple cannot refinance or pay off debt for a certain shared property, the court may order the sale of that asset.
Sometimes neither spouse can maintain or refinance the debt, or sell the asset. If this occurs, a feasible payment plan should be developed to prevent either party from being sued and to keep their credit history from being detrimentally affected. In these challenging situations, a divorce mediator or Geneva family law attorney can help both parties develop a plan to address the debt and negotiate issues surrounding certain assets.
