There is a new beginning and an ending to divorce.Too many marriages end because of financial issues.Money issues were found to be the third leading cause of divorce.Even though your marriage is ending, taking a reasoned look at debt distribution can smooth the divorce process.
Step 1: The documentation should be gathered.
To accurately and fairly assess your debt situation, you and your spouse need to get recent statements for all debts, including mortgage, credit cards, bank loans, business credit lines, tax statements, student loans and outstanding invoices on medical and legal bills.It should be included in the analysis when in doubt.Also give recent income information.There are pay stubs and W-2 forms for businesses.The equitable distribution of the debts will be helped by this.Equitable distribution can mean different things.Factors that affect equitable distribution include earning capacity, age, health, child-rearing responsibilities, and education.The court won't punish one spouse for adultery for debt distribution.The court will only look at economic fairness despite the reason for the divorce.
Step 2: Take care of your debts.
There are three basic categories of debt that can come up in a divorce.If you don't handle each correctly, you could end up with bills that last for years after your divorce.Divide your debts into different categories using the account statements.The loans that are secured are called secured debt.Mortgages on real estate and chattel loans on vehicles are some of the most common secured debts.There is no debt attached to any property.Credit cards and bank credit lines are some of the most common types of debt.Unsecured debt includes medical bills.Tax debt can be either federal or state.You may be responsible for the total debt if you and your spouse filed a joint return.While you and your spouse are sorting things out, divorce expenses can pile up.Attorney fees, court ordered mediation, appraisals, moving, and paying for a second residence can result in bills that need to be looked at during the allocation of debt
Step 3: There are debts that are marital or separate.
Joint marital debt is debt that was acquired after the marriage in the name of both parties.A mortgage in both names is a common example.Credit cards held in one party's name, medical bills, student loans and accounts that existed before the marriage are included in separate debt.Each person's name must be on the account for credit cards to be true joint debt.The debt is singular if the spouse is an authorized card holder.There are differing legal decisions on student loans.A few court cases have argued that student loans are the responsibility of both parties.Student loans should be assumed to belong to the spouse that signed for them.
Step 4: Consider working with a lawyer or mediation.
Property and debt division can be rough for the most amicable of divorces.If the spouses can agree on how much debt they have, then costs can be kept to a minimum.A lawyer can make suggestions on how to protect both parties.A lawyer may cost more than a mediation.
Step 5: Determine if you want to keep the property or sell it.
Usually a house or a vehicle are attached to secured debt.Property secured by debt has value in the market.Assets and debt go hand in hand.If you're thinking of selling, you need to arrange for an appraisal as soon as possible to make sure the price will satisfy the debt.In volatile real estate markets where the marital residence may be "underwater," the current market price would not pay off the mortgage.
Step 6: Consider an asset-debt swap.
There are not every pieces of property that need to be sold.The judge is likely to accept the property settlement if debts are fairly allocated.Vehicles are a typical asset swap for secured property.Couples will take the vehicle they commonly drive even if they are titled together.The spouse takes the debt with the car if there is an open car loan.Other assets or debts can be taken if there is a discrepancy in the balances.Residential and business property are examples of asset-debt swaps.Each spouse takes on the mortgage and keeps the equity on their property.Until you or your spouse are able to get out of debt, both names remain on the loan.If the spouse defaults on the loan, the property settlement should be used.The other spouse can take possession of the property and continue to pay the loan.
Step 7: You can explore an equity buy-out.
The main criteria for a successful buy out of the equity is that the spouse retaining the property can take out a loan in her own name and pay it back in cash or property.The benefit of an equity buy-out is that the parties walk away from the debt with no risk.The downside of equity buy-out is that the other spouse can be held responsible for the mortgage or loan even if they don't live in or use the property.
Step 8: Individual debt and marital debt should be separated.
If a credit card is in one spouse's name only, it should be considered separate individual debt and that spouse should assume responsibility for it.The main exception is when the spouse has a lower earning capability than the separate debt.The judge will likely order the other spouse to take on some of the debt.
Step 9: Divide the debt between the two people.
Each balance can be apportioned if the split is by account.One party can accept debt in exchange for other assets in a property settlement.An example would be one spouse waiving claims to a retirement account in exchange for paying their credit card debt.Other assets can be adjusted to keep the division fair if one spouse can pay more of the debt.
Step 10: If you want to file for bankruptcy, consider it.
Mortgages, child care, transportation, and utilities should be prioritized.If you and your spouse can't pay their credit card debt, you should consider filing for bankruptcy.You will need the assistance of an attorney if you are planning to file for bankruptcy.You can match your goals to your budget with a free consultation from most.If you're filing for bankruptcy, don't extend any new credit lines.
Step 11: Determine which year the tax debt came from.
If you and your spouse have been assessed tax debt, including penalties and interest, you need to know which year it came from.
Step 12: If you're eligible for the IRS's Innocent Spouse Relief, you should investigate.
There are three different types of relief that you can consider.A total discharge of tax liability is the first thing.If you can show that you relied totally on your spouse, the IRS can split the liability between you.The IRS will abate interest, penalties, and possibly give you other credit toward the tax debt if the debt is equitably divided between you and your spouse.Most states have the same plan.Contact your state tax authority if you have problems with the IRS.The same information and arguments can be used to reach a compromise.
Step 13: A payment plan is needed.
Once you have reduced the tax debt, you will need to set up a payment plan with the IRS.All future tax refunds will be applied to your tax debt until it is paid off.