How Can I Protect Myself If My Spouse Takes Out A Loan In The Divorce?

Many people who are preparing for divorce get anxious when they begin to think about incurred debt, both their spouses and their own, and if they will be responsible for paying this debt off once they are separated from their spouse. When it comes to debt incurred during marriage, the truth is that it all depends on a few things, mainly who’s name is the debt in, what your state’s laws are, and what kind of debt it is (credit card debt, mortgage, auto, etc).

If your name is on a loan, either as a borrower or a co-signer, you will be held completely responsible for the paying back of this debt. The lender of the initial loan does not care about the circumstances of the borrower – their main priority is to receive money to the fulfillment of the debt (they may not ever even become aware that you got divorced!). The longer this goes unpaid, the more your credit score will suffer, and when you are just getting out of a marriage, and your finances are still a bit in a state of flux, the last thing you want is a mounting debt and a suffering credit score – especially as you look for a new home. So merely by being a co-signer, even if the “debt” is not explicitly on you, the loan and payment of it are applicable to you. A good option here is to try to get your name off the loan, either by refinancing or, if possible, having your name removed entirely. But if that doesn’t work, it is best to have it paid off, and deal with being repaid later, when your credit score isn’t taking a major hit.

In the state of New York, a “common law” state, spouses are only responsible for debts explicitly in their name, which allows one to be very mindful and careful when deciding on entering into a joint account with their spouse. Moreover, a prenuptial agreement can outline something similar, in that it can explicitly detail how finances, and debts, are to be divvied up in the case of a divorce.

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