Friday, December 2, 2011

Should I Pay Bills Off Before I Get a Divorce?

Marital debts can be as hotly contested in a divorce as assets such as automobiles or a primary residence. Paying down marital debts prior to a divorce may have a positive or negative affect on your divorce settlement. The effect may ultimately depend on how much income you earn as an individual and how much debt you are responsible for accruing while you were married.

Pre-Marital Debts

    When you divorce, some states do not divide debts that were your responsibility when you entered into the marriage. These are known as community property states, according to Bank Rate's website. For example, if you have a credit card account in your name before your marriage, you will probably be responsible for paying off that debt even after your marriage ends. Therefore, it's to your benefit to pay down your pre-marital debts before you divorce to help minimize the hit your credit rating will take once your assets are divided by the court. As of March 2011, nine states in the country, including Texas, California and Arizona are community property states.

Debts in the Marriage

    The remaining 41 states across the country view all debts in a marriage as marital property. These states, including New York, Pennsylvania and Colorado, are known as common law states. Marital debts in common law states are often divided as evenly as possible between the two spouses. This means you could end up owing money on debts you did not personally create. Conversely, you may end up owing less total debt than you personally accrued during the marriage. It may make sense to wait until the court divides the debts to pay them down. Paying off half the debt obviously makes more sense than making payments on the entire debt.

Highest Earning Spouse

    In some instances, marital debts may divided in accordance with each spouse's income. This allows each spouse to pay off a portion of the marital debt without placing an undue burden on income and placing other debt obligations in jeopardy. If you are highest earning spouse, paying down debts makes financial sense before the marriage ends because you may responsible for the larger portion of the debt once formal divorce proceedings begin.

Spousal Reimbursement

    Paying off your debts before your marriage ends can also be helpful if you believe your spouse is not likely to pay his portion as decreed in the divorce judgment. This could leave you responsible for the entire debt on your own as creditors begin contacting you to remit payment. If this occurs, you may make payments on your spouse's portion of the marital debt and file a petition to the court for spousal reimbursement. This is a court order compelling your spouse to reimburse you for the money you spent paying his half of the marital debts.

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