Dividing Debt in Mediation

Do we have to divide up our debt?

Yes. In a divorce, property agreements must divide debts as well as cars, property, or other assets, between the parties. Debts may be owed on specific pieces of property, such as on a car, or debts may be owed on purchases already made, such as credit card debt. Debts may be in the name of both people or in the name of only one person. If the debt was incurred prior to the marriage, usually that debt belongs to the person who incurred it and not to both people. Examples would be a student loan and significant purchases made prior to the marriage.

What if we each own a vehicle that has a loan? How can we make sure that we only have to pay what we owe on our own vehicle?

You may want to agree that each person will keep their primary vehicle and that they will pay the debt owed on that vehicle. You might include the following language in your agreement:

• Each person will keep the vehicle[s] which is now in his or her name and possession free and clear of any claim by the other person, and is solely responsible for any debt owed on it.

OR

• [Insert the first person’s name] will keep the [insert year, make, model of vehicle] as her/his property, free and clear of any claim by [insert the second person’s name]. [Insert the first person’s name] will assume any debt owing on the vehicle and will be solely responsible for that debt.
  
  [Insert the second person’s name] will keep the [insert year, make, model of vehicle] as her/his property, free and clear of any claim by [insert the first person’s name]. [Insert the second person’s name] will assume any debt owing on the vehicle and will be solely responsible for that debt.

What if we have a debt in both our names?

You may want to agree that you share the debt or that one person pays the entire debt. However, if the person who agrees to pay the entire joint debt does not pay that debt, the creditor (the credit card company, bank, or finance company) can still collect from both people, even the one who did not agree to pay the debt. As a result, the credit rating of the person who did not agree to pay the debt may be affected. If that person decides to pay the debt in order to protect his/her credit rating he/she may have to ask the court to order the other person who originally agreed to pay the debt to reimburse him/her.

With credit cards, you can transfer the balance of a jointly held credit card to another credit card which is only in one person’s name. Whenever possible remove the name of the person no longer responsible for the debt from the account.

So, if we own a car together and the loan is in both of our names, or if we have a credit card in both our names, how can we divide those debts?

If you want to divide the debt between the two of you, you might agree to the following:

• [Insert first person’s name] is solely responsible for, and [insert second person’s name] shall have no responsibility for, payment of the following debts: [list each creditor or debt and the amount owed]
  
  [Insert second person’s name] is solely responsible for, and [insert first person’s name] shall have no responsibility for, payment of the following debts: [list each creditor or debt and the amount owed]

Is there any way we can protect ourselves in case the other person fails to pay a debt he or she agreed to pay?

Yes, you can add language to your agreement to financially protect each person. You might agree to the following language being included in your property settlement:

• Whenever this agreement requires one person to assume and pay a debt where the other person may be liable, the person who is responsible for paying the debt shall arrange for the other person to receive copies of all regular statements and all notices of default relating to that debt.
  
  If the person responsible for paying the debt fails to make any payment when due, the other person may make the required payment or pay the debt in full, and then may ask the court to order the person that was responsible for paying the debt to reimburse them or to give the property to them.
  
  If the person that makes the required payment has to go through the court to recover the money they paid on the debt, the other person shall also pay any court costs and attorneys fees incurred by the person who paid the debt.