Divorce and debt management can feel like a daunting challenge. Facing both at once is tough, but ignoring the issue only compounds the problem. If you’re dealing with debt during your divorce, understanding how to manage it is essential. Spending impulsively or rushing to pay off debt could have negative consequences down the road. The key is to create a plan that safeguards your finances, helping you avoid common mistakes and ensuring a smoother transition through your divorce.
What You Shouldn’t Do with Debt During Divorce
Retail therapy might seem like a quick fix, but it’s a dangerous move during a divorce. Going on a shopping spree adds more financial stress and makes things worse. Temporary Orders in many divorce cases specifically prevent excessive or unnecessary spending. Violating these orders can lead to serious consequences, including an enforcement case. The last thing you need is two legal battles over your finances.
When it comes to divorce and debt management, paying off large debts early in the process isn’t always the best approach. Since you can’t predict all upcoming costs, it’s important to keep cash in savings for flexibility. Depleting your funds too soon can leave you vulnerable to unexpected expenses later. It’s wise to hold off on making significant financial moves until your divorce is finalized, allowing you to maintain better control over your finances during this transition.
Handling the Mortgage During Divorce
Your mortgage represents both an asset and a liability. If you have equity in your home, it’s a positive, but the mortgage itself can hold you back. For many couples, both names are on the mortgage, which complicates things.
Deed of Trust to Secure Assumption
If one spouse plans to stay in the house, a Deed of Trust to Secure Assumption protects the other spouse. This document ensures that the person leaving the home can reclaim it if the remaining spouse fails to make mortgage payments. This legal protection matters because the financial burden doesn’t end when someone leaves the home.
Refinancing the Mortgage
Refinancing the mortgage into one spouse’s name can solve many problems. It frees the departing spouse from the liability and provides an equity payout. However, refinancing isn’t always possible. The remaining spouse might struggle to qualify for a new loan due to a lack of credit history or stable income. If refinancing isn’t an option, the Deed of Trust becomes even more important.
Debt Allocation in a Divorce Decree: What to Know
You and your spouse can divide debts any way you want, but creditors won’t honor your divorce decree. Even if your spouse agrees to take on a credit card debt, the creditor still sees both of you as responsible. For example, if you have a joint credit card with a $6,000 balance, a divorce decree may assign it to your spouse. However, if they miss a payment, the creditor will still hold you accountable.
If your spouse fails to follow the terms of the divorce decree, you can file an enforcement lawsuit. The court can order your spouse to pay the debt and cover any related legal fees. This adds an extra layer of protection for you in case your ex-spouse drops the ball on financial responsibilities.
Factoring in Future Income Disparities When Dividing Debt
When dividing debt, future earnings can play a big role. If one spouse has a higher income potential, it may make sense for them to take on more debt. In exchange, they could receive a larger share of the marital assets. This approach balances the financial load and sets both parties up for a more stable future.
Mediation Offers Flexibility
Mediation allows you to create a debt division and management plan that works for both sides during divorce. You and your spouse can negotiate based on your unique situation. This process often leads to better results than leaving it up to a judge in a trial. Mediation gives you more control over the outcome and allows both sides to walk away with a fair arrangement.
Common Types of Debt in Divorce and How to Handle Them
Debt plays a significant role in most divorces, and handling it properly can save both parties from long-term financial damage. Two common types of debt often involved are car loans and medical debt.
Car Loans
Handling a shared car loan during divorce requires careful planning. Refinancing the loan into one spouse’s name can help resolve ownership and payment responsibility. If refinancing isn’t an option, selling the vehicle and paying off the loan might be the best choice. Trading in the car for one you can purchase outright can also be a smart move to avoid future financial entanglements. Without resolving the loan properly, both spouses remain liable, which can harm credit scores if payments are missed.
Medical Debt
In Texas, medical debt is considered community property, meaning both spouses share responsibility for medical bills incurred during the marriage. Even if only one spouse received treatment, both are legally responsible. Divorce separates this responsibility, but any outstanding medical debt from the marriage remains a shared obligation. It’s essential to allocate this debt carefully in the divorce decree to avoid problems later. Ignoring medical debt during divorce can lead to wage garnishments or other serious financial issues post-divorce.
Practical Tips for Debt Management During Divorce
Managing debt during divorce requires thoughtful strategies to protect your finances and future. It’s essential to take steps that avoid further complications.
Maintain Savings
During a divorce, maintaining savings is more important than paying off large debts. You don’t know all the costs ahead, and having a cushion of savings ensures you’re prepared for unexpected expenses. Paying off debts aggressively during the divorce process can leave you short on cash when you need it most.
Protect Your Credit Score
Protecting your credit score becomes crucial during a divorce. Joint accounts, like credit cards or loans, remain tied to both parties unless resolved. Make sure joint accounts are either closed or managed properly to avoid missed payments, which could harm both spouses’ credit. Keep an eye on your credit report to ensure no missed payments or unexpected charges damage your financial standing.
Consider Spousal Maintenance
Spousal maintenance can help balance debt loads, especially if one spouse has a significantly lower earning potential. Negotiating for spousal maintenance in exchange for taking on more debt may provide a fair solution for both parties. This arrangement can prevent one spouse from being overwhelmed by debt while still covering living expenses post-divorce.
Conclusion
Debt management is a crucial aspect of protecting your financial future during a divorce. Avoiding impulsive spending and making informed financial decisions will help ensure better outcomes for both you and your spouse. It’s important to take steps to preserve savings, protect your credit score, and fairly divide debt responsibilities. Consulting with an experienced attorney can help you create a personalized plan that addresses your unique circumstances, ensuring you navigate the divorce process with minimal financial strain.
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Law Office of Bryan Fagan, PLLC | Houston, Texas Divorce Lawyers
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding divorce, it’s important to speak with one of our Houston, TX Divorce Lawyers right away to protect your rights.
Our divorce lawyers in Houston TX are skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact the Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form.
Bryan Fagan, a native of Atascocita, Texas, is a dedicated family law attorney inspired by John Grisham’s “The Pelican Brief.” He is the first lawyer in his family, which includes two adopted brothers. Bryan’s commitment to family is personal and professional; he cared for his grandmother with Alzheimer’s while completing his degree and attended the South Texas College of Law at night.
Married with three children, Bryan’s personal experiences enrich his understanding of family dynamics, which is central to his legal practice. He specializes in family law, offering innovative and efficient legal services. A certified member of the College of the State Bar of Texas, Bryan is part of an elite group of legal professionals committed to ongoing education and high-level expertise.
His legal practice covers divorce, custody disputes, property disputes, adoption, paternity, and mediation. Bryan is also experienced in drafting marital property agreements. He leads a team dedicated to complex family law cases and protecting families from false CPS allegations.
Based in Houston, Bryan is active in the Houston Family Law Sector of the Houston Bar Association and various family law groups in Texas. His deep understanding of family values and his professional dedication make him a compassionate advocate for families navigating Texas family law.
