Debts present a particular set of difficulties in regards to a final decree of divorce. While the final order may order one party to pay a particular debt and indemnify the other party in regards to that debt, the final decree of divorce cannot alter the contractual relationship that the creditor has with you or your former spouse. Therefore, if both spouses contracted for the debt, the creditor will pursue both in the event of a collection action.
An indemnification clause enables one spouse to sue the other to recoup the costs of paying the debt and legal fees to pursue reimbursement from the former spouse that violated the final decree of divorce. However, this process is cost prohibitive in regards to the legal fees that accrue in pursuit of the judgment reimbursing the wronged spouse. Furthermore, once the wronged spouse obtains a judgment, he or she is still left trying to collect on it, incurring yet more legal costs and perhaps without obtaining payment.
Under these circumstances, the best course of action is to refinance joint debts solely in one spouse’s name or pay off the debts in their entirety as part of the final decree of divorce. Solutions can often be found by structuring a final settlement that accounts for the debts and divides property in combination with debts to create a functional outcome for the parties moving forward. Therefore, the spouse with a low credit rating may be awarded the car that is already paid off while the other spouse takes the car for which there is still a note and refinances it solely in his or her name. In regards to the marital home, the spouses may sell the residence to satisfy the mortgage and split the proceeds from the sale. Alternatively, one spouse may be awarded the home, but refinance it individually to provide the other spouse with his or her share of the equity and remove his or her name from the note. There are additional options regarding a home as well including a delayed sale or an owelty of partition.