Debt can be as consequential to a marital estate as the most significant assets a couple shares. What they owe might lead to years of ongoing payments for both of them before they are truly free from the consequences of their unified financial decisions.
Credit card debts, student loans and other financial obligations taken on during a marriage will often be parts of the marital estate that couples must divide when they divorce. It can be very difficult to agree on a fair way to divide financial obligations at the end of a marriage. The two factors below are among the most important to consider when deciding what to do with debt in an upcoming divorce.
1. Who has the ability to pay?
The financial resources of each spouse, including their personal holdings and their income, determine how much debt they can handle after the divorce. Sometimes, one spouse has far more earning potential than the other and will therefore theoretically become responsible for far more marital debt because the other won’t have the resources to make payments. There could be a lot of flexibility in how to split the debts and the resources from the marriage.
2. Will the person with the resources follow through?
Just because someone can make credit card payments as ordered by the court does not necessarily mean that they will. Those negotiating a settlement as part of their divorce have to consider the possibility that their spouse might default intentionally or even go so far as to file for personal bankruptcy as a means of harming them financially.
Even when there is a court order making one spouse responsible for the debt, creditors can still take action against the other spouse. In cases where spouses have enough resources, such as saved capital or home equity, to pay off certain debts, resolving them during the divorce rather than allowing for payments after the divorce can be a way to prevent misconduct on the part of one spouse from harming the other.
Carefully considering who can pay the debts assumed during marriage and how likely they are to do so may help those who are preparing for divorce featuring complex assets better protect their future finances.