Dividing Debt in Divorce
CCCS provides tips for consumers about protecting their finances during
There is evidence that couples' financial
problems are linked to increased levels of stress, conflict, and marital
duress, as well as decreased levels of marital satisfaction (Sanchez and
Gager, 2000), which clarifies the reason why financial problems are
frequently cited as a major reason for divorce. Ironically, the financial
problems that result from divorce may be even more severe. While it may be
hard for people involved in an emotionally draining divorce to clearly think
about their money, it is imperative they do. One of the most pressing
concerns of newly divorced people is determining who is responsible for the
repayment of debt.
According to Consumer Credit Counseling Services of the East Bay, a
division of Money Management International (MMI), the first financial action
after separation is to pull a copy of your credit report. You will want to
review entries carefully and either close joint accounts or change them to
individual accounts. Alert your secured lenders of your marital status and
instruct them not to allow any changes without your permission. You may also
want to "freeze" joint bank accounts or divide any funds into two individual
As preparation for the divorce, you and your spouse need to reach an asset
settlement to be presented in court. This settlement agreement outlines how
your debts and assets will be divided; it also includes plans for spousal
and child support.
"To avoid future problems, it makes sense to develop a plan to pay off
your debts prior to your divorce," said Shirley Dean, education and
community relations director for CCCS of the East Bay. "Remember, your
divorce decree is an agreement between you and your spouse (not your
creditors) on how your debts and assets will be divided. The contracts you
signed with your creditors cannot be changed by the divorce decree. Whoever
signed the original contract with the creditor will still be obligated to
pay the debt after the divorce."
As protection, your divorce agreement can include a clause stating that if
the assigned debts are not repaid, you would be entitled to indemnification.
After the fact, your only recourse may be to file contempt of court charges
for failure to abide by the terms of the divorce decree. Keep in mind that
still would not relieve you of your obligation on the debts.
Because divorce can be a very complex process, consider hiring a trusted
financial advisor for help; be certain to ask about your advisor's
experience with divorce situations.
About Consumer Credit Counseling Services
Consumer Credit Counseling Services (CCCS) is a non-profit, full-service
credit-counseling agency, providing confidential financial guidance,
counseling and debt management assistance to consumers for more than 47
years. CCCS helps consumers trim their expenses, develop a spending plan
and repay debts. Counseling is available by appointment in branch offices
and 24/7 by telephone and Internet. Services are available in English or
Spanish. To learn more, call 800-762-2271 or visit their Web site at