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Marital Debt

Marital Debt

Not only must marital property and assets be divided upon divorce, but also marital debts must be divided as well. In Georgia, responsibility for the debts assumed by the couple during the marriage may either by assigned by the parties themselves by virtue of a settlement agreement or by court order. Similar to marital assets or marital property, marital debt is debt incurred by one of the spouses during the marriage.

In general, there are two types of marital debt that you are dealing with during a divorce: 1) joint debt (debt in both spouses’ names; and, 2) individual debt that is marital in nature.  This distinction is important when you remember that the holder of your debt is not a party to your divorce.  As such, they are not bound by any arrangement between two divorcing spouses as to who is going to be responsible for paying them.  Specifically this means that even if a divorce decree mandates that one spouse is totally responsible for the repayment a joint debt, the other spouse may still be held accountable for the repayment of that 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 that made the charges. Thus, even if a court 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 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 that debt is refinanced out of her name).

Since divorce decrees are not binding upon third party creditors, what can you do to alleviate concerns that your ex-spouse defaults on a debt that they promised to pay but that happens to still be in your name?  In general, there are several ways to structure there are 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:

  1. Have both spouses agree to pay off all joint debts as part of the divorce;
  2. Attempt to minimize joint debts being paid by your ex-spouse so that you control the payment of these debts;
  3. Cancelling the credit card as part of the final divorce to at least prevent future charges from increasing the amount owed;
  4. 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.
  5. Consider filing a contempt action against your ex spouse to force compliance with the final divorce decree.  Courts have upheld contempt violations in these cases including possible jail time for non-compliance.  See Stone v. Stone, 295 Ga. App. 783 (2009).