Debt Allocation

Years ago, courts were not required to allocate marital debt between the parties. A statutory amendment in 1998 changed that, and nowadays a good attorney must consider both marital and non-marital debt in any dissolution.

There are several misconceptions about debt and divorce. The most common misunderstanding is that a divorce court can relieve a party from debt. In fact, even if a court orders one party to pay a debt, a third party creditor is not bound by the order if both parties signed up for the debt. There are devices we use to eliminate this problem, or reduce the chances it becomes damaging, or ameliorate the effect on the “innocent” party, but this requires careful work by counsel.

Another misconception involves bankruptcy. Dan Pingelton has practiced long enough to see three significant changes to federal bankruptcy laws that have completely shifted the approach to debts listed in domestic relations orders.

Perhaps most critically, marital assets encumbered by debt (for example, mortgages) must be handled properly to ensure the asset is not endangered from the faulty handling of a related debt obligation.

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