The Truth About Bankruptcy & Divorce
In almost all marriages, the couple’s financial lives are intertwined during the marriage, and the general feeling is that they owe the debts incurred during the marriage together, as one. This is not the case, and creditors do not share the sentiment. We’ve all heard the statistics about financial stress being one of the most common causes of divorce, but why else do divorce and bankruptcy seem to occur at or within such a short period of one another?
During a divorce proceeding, both assets and debts are split between the divorcing individuals, and divorce arrangement is typically formalized in a divorce judgment. For example, one term of the divorce may be that the Wife agrees to pay the amount owed to Discover, and to hold Husband harmless (meaning she won’t attempt to have Husband contribute to the debt repayment). The divorce judgment is entered and both parties move on with their lives, right?
Maybe, but what happens if Wife doesn’t pay the Discover card debt? Discover will understandably start calling, but they won’t just call Wife, they’ll call both Wife and Husband. Husband will exasperatingly try to explain to Discover that they don’t understand, the debt was already dealt with in the divorce, his ex-wife is supposed to pay the debt, as agreed, pursuant to the divorce judgment. But regardless of what Husband and Wife agreed to in their divorce proceeding, Discover didn’t agree to anything. As far as Discover is concerned, there are two individuals jointly and severally liable for the debt (meaning they can collect all or a portion of the debt from either person). The same is true if the Wife files bankruptcy and discharges the debt to Discover – the Husband will remain liable for the debt.
Shy of having every creditor sign off on the divorce judgment effectively releasing the spouse who is not taking on the debt (don’t hold your breath, this isn’t likely), or settling the debt with the creditor in return for a signed release, the only way to ensure the other spouse will not be subject to collections is to discharge the debt in a bankruptcy proceeding. Or pay it, I always forget that option.