July 16, 2021

Debts and Divorce

“How can the bank foreclose on me?  The divorce judgement that I negotiated with his lawyer made my husband totally responsible to pay the second mortgage?”  Now, I had to explain to my distraught new client that whatever deal was made (or ordered by the court) between spouses for payment of a debt isn’t binding on the creditor. The unpaid creditor can still go after whomever is liable to the creditor.

In a divorce, the judge has the power to order that an asset held in one spouse’s name alone (or in both names) go to the other spouse.  The judge also has the power to order that a debt solely of one spouse (or jointly of both spouses) be paid by solely by the other spouse.  The type of debt doesn’t matter.  The unpleasant surprise for the uninitiated is that the family court order doesn’t change the creditor’s rights. 

The creditor can collect its debt without regard to the allocation of responsibility made by the family court.  So if spouse B signed the second mortgage note, even if spouse A got the house and spouse B was ordered to pay the debt, if B doesn’t pay, the creditor can foreclose on the house.  The court order isn’t a defense to the foreclosure.  Spouse A might have to pay to protect the property and then go after spouse B for reimbursement.

Another often serious consequence of one person’s failure to pay their former spouse’s debts is the negative impact on the former spouse’s credit.  Even if the responsible spouse catches up on missed payments, the damage has been done – the debtor spouse’s credit history will show the delinquency and be reflected in the credit score even when the delinquency wasn’t the debtor spouse’s “fault”.

There are strategies to address these risks if the debt cannot be paid off at the time of the divorce.  These include monitoring that payments are made so early action can be taken if they are not, or providing security for the obligation. The approaches are driven in large part by the comfort level of the spouse of the reliability of the soon-to-be former spouse.  Capable counsel can help assess the risk and offer options to reduce it.

This article was first published in the July 8, 2021 edition of The Cheshire Citizen.

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