I can count on one hand the number of people that have come in to meet with me for a consultation who have asked me about debts that they and their spouse have. Debt is a common attribute of married life for most people in our country. Student loan debt, credit card debt, mortgage debt- we Americans never met a loan we weren’t eager to take out and pay interest on. Not all debt is created equal, mind you, but as a whole, we should be more concerned with debt than we probably are.
As we discuss property much more than debt in the context of a divorce, I think it is time that we devote an entire blog post on the best practices on how to handle debt in your divorce. I’m not telling you that you should be leaping off your rooftop at the thought of having to pay interest on a loan. I’m not telling you you need to go into your divorce with the mindset that you have to negotiate away all of your debt (hint: you won’t be able to, most likely). You need to be aware that debt is impactful on your life and, therefore, should be recognized as such within your divorce.
Do not stop paying your debts during your divorce (unless suggested otherwise by your attorney)
Suppose you are falling behind on your car payment already, and now you are faced with the prospect of hiring a divorce attorney. In that case, it may have crossed your mind that you have an option not to pay your car payment until it is decided which person in your divorce will be responsible for it. This is not a good plan for you to follow. It would help if you continued to make payments on whatever debts you have.
It is likely, first of all, that any debt in your name will continue to remain yours after the divorce. So any fleeting thoughts of your debt is transferred to your spouse are unlikely. With that said, any arrearages in payments that accrue throughout your divorce will be your responsibility moving forward. Your credit will be sunk, and the interest owed will only increase. A bad situation that is avoidable.
An exception to this general piece of advice is that if the debt is not in your name but has been one that you are making payments on for your spouse, you may be advised by your attorney not to pay on the debt. For instance, if you and your income produce a car your spouse drives in her name, you may not want to pay the debt. If a judge orders you to do so, that changes things.
Do not pay any more than the minimum payment on a particular debt.
Part two of our general advice that you should be paying debt during the divorce as scheduled is that the payments you make should be no more than the minimum. This is because debt can be used as a negotiation tool in the divorce, and there is little sense in paying off a debt early when you don’t know if you will even get credit for doing so. If you pay off a car loan during the divorce, your spouse may even argue that you were wasting community resources in doing so.
I understand the hesitancy to let a debt hang around. I am no fan of debt, and I take out as little debt as humanly possible in my personal life. However, if you have an obligation active, then you should save up money (if able) to pay down the debt after your divorce. This does not hurt you in the long run and keeps your payments current in the short term.
Keep documents handy of your debt payments.
This is more or less a general rule that could be applied to any area of your divorce, but I am using it to your debt load. If you are making payments on a debt of some sort, you need to document you have done so in case your spouse attempts to argue that you have not been staying current. When you make a payment, and the website gives you an option to print for your records a statement showing the price having been made, do not ignore that suggestion. You can print to PDF and save an electronic version, so you don’t have stacks of paper taking up space in your office or desk drawer.
Keep your spending in check during your divorce.
It is tempting to do a little retail therapy during your divorce and buy that television, dress, suit, or other expensive items that you’ve had your eye on and to justify doing so in the name of making you feel a little better in the face of your difficult divorce. After all, you’re going through a lot, and you’ve earned that dress for having done so, right? Wrong.
First of all, you may be violating a court order in spending a ton of money on items that are not necessities. Check with your family law attorney on whether or not your temporary or standing orders bar you from spending money on things like this. If they do, you have one more reason to stay the course and not spend your money.
A massive increase in your credit card debt makes splitting that debt up in your divorce is much more challenging. Suppose that the majority of debt incurred on that particular credit card account was your spouse’s. Then, one day you up the debt number by a couple of thousand dollars. Previously, the debt could have been shifted over to your spouse in the final orders. Now, your spouse may be less willing to agree to this sort of clean split and may require you to pay a portion of it or cause you to lose an asset in exchange for your spouse to pay the totality of the debt.
Be careful what you use your credit card to spend money on
Finally, I will point out that credit card statements are commonly requested in discovery. This means that if you are spending money on items that are not related to your divorce, your children, or your work, then you will likely have to account for those in negotiations or court. Spending via a credit card means that a paper trail will be created. It would be surprising if your spouse did not discover what you spend your money on via discovery.
The best course of action, in my opinion, is to do little in the way of your credit card during a divorce. See if you can live on cash as much as possible. Cut your spending to the bone. Only use your credit card when you have to. As stated earlier, pay the monthly minimum payments on the card and no more. If you have a clue to pay off the credit card, you should talk to your attorney before doing so.
Ultimately credit cards are neither good nor evil- they exist. If you use the credit card responsibly, your results will show that the card offers you no particular harm. However, if you use the credit card as a method of escapism from your divorce or fall behind in payments, you could find yourself not only in trouble with the creditor but also your spouse.
Social media and Digital Security best practices- tomorrow’s blog post topics from the Law Office of Bryan Fagan, PLLC
Stay tuned tomorrow as we shift gears to the digital realm to discuss how you should treat online and social media accounts during a divorce. These areas tend to get lulled into a false sense of security where their bad behavior is believed to be done in secret. Don’t let this happen to you. Please read our blog tomorrow to learn more.
In the meantime, if you have any questions regarding family law in Texas, please do not hesitate to contact the Law Office of Bryan Fagan, PLLC. One of our licensed family law attorneys will be happy to schedule a free-of-charge consultation to discuss your issues with us.