Divorce can have devastating financial consequence. During a marriage, you learn to budget based on a “family” income and on “family” debts. Some of the monthly expenses remain constant like mortgages and car loan payments.

After a divorce, that budget changes. Income must now be stretched to cover expenses related to two residences instead of one. This can be very difficult, and if proper planning is not provided, it is not uncommon that a divorce ultimately results in the filing of bankruptcy for each party.

It is a common misconception that a court in a divorce can relieve one party from the financial obligations incurred during the marriage.

Although the Court may require one party to pay a joint debt, that ruling does not prevent a creditor from pursuing either party for an unpaid debt. The creditor is not a party to the divorce action. The Court has no authority to modify the terms of the contract that was executed with the creditor.

Even in cases where the parties have an amicable relationship and reach an agreement on the issues, danger lurks. Problems with joint debts are often the result of mistakes and ignorance rather than an intent to harm the other party. As a result, if you aren’t careful to protect your rights as part of your divorce and if you do not place protections into a divorce agreement, your finances may be adversely affected for years.

DANGERS

* Even a debt that is current may affect your ability to qualify for new credit since the outstanding debt will appear on your credit report;

* unpaid joint debt may adversely affect your credit rating and impair your ability to acquire new loans;

* An unpaid joint debt may result in collection efforts and costly court appearances;

* An unpaid joint debt may result in the entry of a Judgment against you;

* An unpaid joint debt may result in garnishments or liens.

How can I avoid these difficulties?

* Pay Off Debt. Any joint debts should be paid off. This is the most practical and bullet proof solution. If the parties do not have the liquid resources to pay off existing joint debts, they may wish to consider selling other assets or tapping into other financial resources to settle the debt. Obviously, this is the most effective way to eliminate the debt and prevent future collection issues.

* Transfer Debt. Joint debts may be divided by transferring the debt solely into the name of the party responsible. This can often be accomplished by satisfying the debt with a credit card in that partys name. This may be more difficult with larger obligations like a homestead mortgage.

* Sell Assets. Sell any assets that are encumbered by a joint security interest. This specifically includes real estate. It is important to remember that transferring the title of the asset into one persons name does not eliminate responsibility for the debt. If you take your name off of title, whether the asset is a car or a house, you are removing ownership but not loan responsibility.