Money is often a point of contention in marriages. So much so that it’s often cited as a leading cause of divorce. However, many spouses wonder if getting a divorce while in debt is a smart move. They think maybe it’s better to wait until the debts are repaid before severing the relationship. If you’re trying to figure out if you should stay married until the broader debt situation is solved. Here’s what you need to know.
How Debt Is Handled During a Divorce
Before you decide whether you should stay married while debt is in the equation. It’s important to understand how those obligations are handled during a divorce. Usually, any debt in both spouses’ names is considered a joint obligation. Regardless of who spent the money.
However, if you live in a community property state. Even debt not in your name could fall on your shoulders. If the debt was incurred during the marriage, particularly if the resulting spending benefited both parties, both spouses can be deemed responsible.
If you live in a common-law state instead. The situation above doesn’t usually apply. The main exceptions tend to be if you cosigned on a debt. Even if it wasn’t ultimately jointly owned. In those cases, debts in your spouse’s name can also be viewed as yours.
In the end, the situation can be surprisingly complex. It ends up even more complicated if you and your spouse aren’t in agreement about debt responsibility. Should that occur, a judge may make the final determinations about where debts go, and that may not come out in your favor.
Dealing with Debt Before a Divorce
In many cases, the only way to avoid a court potentially deciding who is responsible for various debts is to pay them off. By eliminating the obligations. They are no longer part of the equation.
If both spouses agree about the goal of paying off debt and are willing to work together for mutual benefit, this could be plausible. For this to work, transparency needs to be a priority. By being open and honest with each other about the financial situation, it’s easier to move forward toward the shared goal without any unnecessary hardship.
However, it’s important to understand that paying down the debt first can be complicated depending on the state of the relationship and where you live. As mentioned above, in a community property state, debts incurred during the marriage are viewed as joint even if both parties don’t have their names on the account. That could allow a disgruntled spouse to open new credit accounts without the other’s knowledge and saddle them with a financial burden without their knowledge or permission.
Similarly, on joint revolving credit accounts in any state, either spouse could continue to spend that money. Since both names are on the card, they are each potentially legally responsible.
Making the Choice
If your relationship isn’t currently amicable, then you need to consider what could occur and plan accordingly. In common law states, you may want to start removing each other’s names from various debts (and bank accounts), creating a degree of separation. That may allow you to focus on paying down debt before moving forward with a divorce.
If your relationship is hostile and you’re in one of the community property states, waiting to get divorced may not be the best choice. While the division of debt during the proceedings may not go the way you’d like, officially separating it could be the safer road.
However, if you and your spouse agree on debt and the risk of nefarious action is low, paying it off is a smarter move. It lets you both move out of the relationship with fewer monetary obligations, potentially easing the transition and increasing your odds of financial success down the line.
Ultimately, only you can decide what’s right. Reflect on the state of the relationship, consider how debt can be divided in your state, and head in the direction that’s the best fit for your situation.
Do you think people should stay married until both parties are out of debt? Why or why not? Share your thoughts in the comments below.
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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.