Divorce Debt Strategies

Family debt as a percentage of disposable income has increased from 70 percent in 1980 to over 110 percent by 2011. With the rising amount of debt in American families, the need to plan for the division of these debts has become a major focus in divorce settlements.

Unsecured Debt Liabilities:
-File documentation and financial affidavits with the Court as quickly as possible on the balances of all debt – credit cards, lines of credit, mortgages, and vehicle loans.
-Order and review the most recent credit reports.
-Cancel all joint credit cards as soon as possible, to reduce the risk of the other spouse running up credit card debt.
-Make the payment, and closing, of joint debt a priority during settlement agreements.
-Consider joining a credit reporting warning service to signal any new credit being initiated during and after the divorce proceedings.

Secured Debt:
-If a spouse is accepting responsibility for a debt and will not hold the title on the asset that secures the debt, attempt to find other methods of guaranteeing the payment of debt.
-Match secured debt to the underlying asset in the distribution of marital assets.
-Examine the debt and maintenance costs of all secured assets to determine if keeping the asset is affordable or advisable.

Family Loans and Gifts:
-Make sure that all family loans are properly documented and all required payments made and other conditions performed.

401K and Life Insurance Loans:
-If there are any 401K loans that were used to fund marital expenses, make sure those loans are paid back with marital assets.

Tax Debt:
-Consult with a CPA to determine any tax issues.

Bankruptcy:
-Our family law attorneys are also experienced in bankruptcy, and can advise if filing Chapter 7 bankruptcy as a married couple could eliminate unaffordable marital debt.
-Consider if Chapter 7 bankruptcy is a good option for the newly divorced spouse to eliminate unaffordable debt post divorce.