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Debt and divorce: Tips to keep creditors from your door

The property division determination of the divorce involves more than just bank accounts and real property. Couples going through a split also need to divide debt.

Dividing debt in a divorce can be difficult. The issue is so prevalent that Fox Business recently ran an article discussing some of the more common problems. One highlight of the article was a discussion on how in some cases, even when debt is assigned to one party to the divorce, the creditor could still come after the other individual for payment.

The problems stem in the fact that creditors are generally not obligated to follow the agreements outlined in divorce paperwork. As a result, financial experts interviewed by Fox Business recommended that, when possible, couples should work to get rid of debt before finalizing the divorce. Paying off debt before the divorce can help ease the asset division portion of the proceeding. 

If the debt remains, the creditor could eventually come after either party. Take, for example, a couple that agrees one party will be responsible for payments for credit card debt from a joint credit card. The agreement is included in the divorce paperwork. If, at a future date, the person who agreed to pay for the joint credit card debt files for and receives relief through bankruptcy court the other person could still be held liable for the debt. The creditor could come after the other spouse, regardless of whether or not the divorce paperwork clearly states the other party was responsible for the debt.

In some cases, protection can be provided through use of a provision prohibiting discharging the debt in bankruptcy. The provision needs to be carefully worded to survive a bankruptcy proceeding, and a legal professional should be consulted to ensure it is done correctly.

Source: Fox Business, "Debt and Divorce: 5 Steps to Make a Clear Credit Split," Dawn Papandrea, July 14, 2014

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