Similar to marital assets or marital property, marital debt is debt incurred by the spouses during the marriage must also be divided upon divorce. Responsibility for the debts assumed by a couple during marriage may either be assigned by the parties themselves by a Settlement Agreement or by the Court's Order.
In general, there are two types of marital debt to divide upon a divorce: 1) joint debt (debt in both spouses' names); and, 2) individual debt which is marital in nature. This distinction is important when you remember that the holder of debt is not a party to the divorce. Therefore, they are not bound by any arrangement between the two divorcing spouses as to who is to be responsible for paying the debt(s). Specifically, this means even if a divorce decree mandates one spouse is totally responsible for the repayment a joint debt, the other spouse may still be held accountable for the repayment of the debt by the joint creditor in the event the responsible spouse defaults.
For example, if a husband and wife applied jointly for a credit card during the marriage, both are liable to the credit card for any debts incurred during the marriage, even if the wife was the only spouse who made the charges. Thus, even if the Court's Order or Settlement Agreement requires the wife to satisfy the credit card debt, if she fails to do so, the husband may be sued by the third party credit card company and said company can take all lawful actions to collect the debt from him.
As another example, if a former husband is awarded the marital residence and is ordered to assume full responsibility for the payment of the mortgage, but fails to make the payment, the creditor will most likely also look to former wife for the payment of the mortgage (unless the debt is refinanced out of her name).
Since divorce decrees are not binding upon third party creditors, what can you do to alleviate concerns of your ex-spouse defaulting on a debt they promised to pay but happens to still be in your name? Generally, there are several ways to structure Settlement Agreements to protect the non-responsible spouse in the event the responsible spouse defaults on making the court ordered payments on joint debt:
- Have both spouses agree to pay off all joint debts as part of the divorce;
- Attempt to minimize joint debts being paid by your ex-spouse so that you control the payment of these debts;
- Cancelling the credit card as part of the final divorce to at least prevent future charges from increasing the amount owed;
- Inserting "hold-harmless" language into the Settlement Agreement or Final Decree would protect the spouse who is not responsible for the debt if the situation arose where the responsible spouse fails to fulfill his or her obligation to repay the joint debt. Hold harmless language obligates the spouse responsible for the debt to indemnify or protect the other spouse from any loss or expense associated with the joint debt, including any penalties, court costs, and legal fees associated with the responsible spouse's failure to pay the debt. In essence, although hold harmless provisions do not prevent the joint creditor from seeking repayment from the non-obligated spouse, these provisions do require the obligated spouse to protect the non-obligated spouse in the event the joint creditor does seek repayment from the non-obligated spouse.
- Consider filing a contempt action against your ex spouse to force compliance with the Final Decree. Courts have upheld contempt violations in these cases including possible jail time for non-compliance.