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How are the different types of debt handled in property division?

On Behalf of | Jan 9, 2018 | property division |

Yours, mine or ours? That is the primary question when it comes to property division in a Michigan divorce. Couples have two options: they can either pay off all their debts before filing for the divorce, or they can have the court decide who will be responsible for which debts. However, regardless of the ruling of the court, lenders will still hold those whose names are signed on the debt contract responsible for payment. It is not always possible to settle all debts, but taking joint debts into a new life may not be desired, and some choose to close joint accounts and open new individual accounts wherever possible.

Debt comes in two types: secured and unsecured debts. Secured debts are those that will allow the lender or lien holder to repossess the item or property if payments are not made. This typically includes homes and other real estate assets along with cars and boats. Regardless of whom the court orders to pay a particular debt, if that person defaults, the lender may seek payment from the other spouse — it will also have a negative impact on the credit scores of both parties. The most appropriate approach might be to refinance such assets when possible.

Michigan is an equitable distribution state, which means that each spouse will be responsible for the debts in his or her name. This also applies to real estate in the name of only one spouse. When it comes to unsecured debts such as credit card accounts, the court will apportion those debts that are in the names of both spouses as it deems fair. Any debts in the name of one spouse only will be his or her responsibility to settle.

Planning a divorce is challenging, even more so if a person is unsure about how debts will be allocated in the property division process. Fortunately, no one has to go through this without help. An experienced divorce attorney can assist by assessing the debts and explaining the applicable Michigan laws to a divorcing spouse. With professional support and guidance, a person may be able to do the necessary financial planning before the divorce to avoid entering a new single life with mountains of debt.

Source: liveabout.com, “How Secured And Unsecured Debt Is Divided During Divorce“, Cathy Meyer, Accessed on Jan. 5, 2018