Divorce not only leads to division of relations, but also to the division of salary. It clearly concludes that the debts and expenses which were earlier handled by two people together will now be handled single-handedly. Divorce always changes the financial situation of a person.
In the case of a debt consolidation loan, most of the time the amount is too high to be paid by a single person.
You can solve this issue with a debt consolidation loan.
The process of calculation of debt and assets after divorce
Post-divorce, calculation of total debts and assets is done, and this is the time when it’s decided who gets what! Usually, the idea of such calculation is to give equal part of both assets and debts to both of them, but this may differ from country to country depending upon the divorce and debt consolidation laws. Generally, the total evaluation of outstanding debt is done and assigned separately to both individuals.
The main challenge here is that it becomes difficult to decide which expenses were incurred by which individual and who exactly has to repay it. Also, both the parties should agree to the assigned settlement of dues which always does not happen.
There already exist a lot of differences between both parties, and financial decisions become one more after the divorce. Sometimes it’s a task to make both the parties agree on all the debt settlement process. There are many cases where either of the spouses is a homemaker and has no source of self-earned income.
In such situations, it becomes really difficult to assign a debt settlement amount to the non-earning spouse, and on the other hand, if the debt is assigned to the earning spouse, he/she has to carry a pile of debt which is unfair on his part. Due to all the mentioned differences between both the parties, the scope for negotiations also reduces. However, a mutual understanding is done, and each party has their own share of debt and assets if any.
Final divorce settlement and division of debt
The final divorce settlement is done considering various factors. The following are the ways in which both the parties can smartly handle their debts even after divorce.
Discussing the individual debt settlement before the divorce
The discussion on who gets what after divorce can be done by both the parties with their consent before getting officially divorced, as the official divorce procedure takes a certain period of time. During this waiting time the “going to be divorced couple” can sit together and discuss in detail about the debt and asset share after the divorce is completed. Also if any changes in assets authority are to be done, then it can be done during this period – e.g., making changes in the nominee name.
This makes it easy for both the parties and the financial institutions to have a clear idea about the repayment of the debt.
Legal liability for the debt
It is not necessary that the liable debt generated during the marriage span is divided as per who incurred the debt in case of community property state; it is quite possible that both the spouses have to pay off the debt equally depending upon various debt consolidation law in every nation.
In other states, the court might give the responsibility of repayment of debt to both the parties based on who had incurred it. In simple words, the debt is assigned to the party on whosever name the debt legally is. However, the debt consolidation loan providers or the financial institutions do not care about the division of share as they just want the debtors to pay off their debt by any means possible.
Coping with future debt disputes
After the couple is officially divorced, they are individually liable to pay off their expenses. If they fail to pay the same, they can hire an attorney for the same or approach a debt settlement company to guide them in the whole process of repayment of the loan.
Also, there are high chances that one of the spouses applies for bankruptcy in the future and this may have an adverse effect on the other spouse’s debt liability. Bankruptcy can eliminate the dues of the applier, but on the other hand, the one who has not applied for bankruptcy will have to pay more if all the secured assets fail to match up the total due amount due from the applier. Hence, prior measures are to be taken by both the parties, and in the case of filing bankruptcy it should be done with the consent of both the parties.
Refinance a debt consolidation loan
The majority of debt consolidation loans are based on cash-out mortgage refinance. The closing period of this cash-out refinances 30 working days normally, but at times it may also take some more time. If a couple decides to get divorced between this period, then it is advisable that they approach their attorneys and take the necessary steps as cash refinances can be both beneficial and dangerous in terms of financial terms.
Basically, cash-out refinances put the loan and assets on the actual possessor’s name and then buy all the equity owned by the non-possessor’s spouse. In an above-mentioned way, the cash-out can favor either of the spouses, hence it is advisable to take further decisions as per the attorney’s advice only.
Debt consolidation after divorce is a task to both the spouses in terms of repaying the debt. But the most affected authority due to the divorce are the loan-providing institutions. At times it becomes very difficult for the collection officers to collect the final recovery amount of the debt from the divorced parties as they are in a continuous dispute of their debt share and are reluctant to pay the ex-spouses’ part of the debt.
In these situations, at times even the financial institutions are confused as to who exactly is to hold a charge for the liable dues. Also, cases like one-sided filing of bankruptcy make it even more complicated.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including business debt consolidation and start-ups.