When a marriage is dissolved, property division is often a complicated process made even more difficult by the emotional challenges involved. Illinois uses a system called equitable distribution to divide property and debt. Rather than assigning everything equally, the court determines what is awarded to each spouse based on several factors. While the award of an asset may seem fairly straightforward, misunderstanding the legal aspects of the division of debt can end in financial disaster.
A loan co-signed by both spouses may affect future loan applications
In Illinois, marital property includes all assets acquired by either party during the marriage except for property obtained by gift or inheritance. The judge may award the home or other property to one spouse rather than requiring them to sell the asset and divide the proceeds. Once this occurs, it is natural to assume that the other spouse is free of any debt associated with the real estate.
If there is a mortgage on the property and both parties co-signed on the loan, the spouse who does not retain the house is not removed from the loan until the lender is contacted and the home is refinanced. This can affect both parties’ credit scores either positively or negatively if the home is paid off or goes into foreclosure.
There is another potential outcome that is equally serious. The spouse who does not receive the property in the divorce settlement may not be able to purchase another home because the new loan is considered a second mortgage. If the lender determines that the amount of debt from the first mortgage exceeds the income available, the loan may be denied.
The court cannot require a credit card company to take one spouse off a joint account
Some credit card companies may be willing to take one spouse off of a joint account so that it becomes an individual account, but this does not happen automatically as a result of the legal dissolution of the marriage. Even if the decree allocates financial obligations to one party or another, both parties may still be affected by credit card debt long after the final court date.
If one spouse agrees to make payments and then lets the debt go into default, collection companies may seek payment from both spouses, and the negative information is listed on both credit reports. Some credit card companies are willing to take one name off the account, but each company is different and they are within their rights to refuse. It may be necessary to pay all joint obligations in full and close them during the divorce process in order to avoid credit issues.
A couple may be able to reach a mutual agreement over the division of property and debt, but even after the divorce is final there is potential for financial repercussions. It is important to seek the advice of an experienced divorce attorney to ensure that issues do not surface months or years afterward.Go Back <<