How Do I Protect My Credit in a Minnesota Divorce?

Blue Question Mark ManHow a Minnesota divorce decree addresses the issue of debt is important. Party A may be required to pay for the debt and the other non-paying Party B is relying on Party A paying the debt timely and in full as the creditors may require.

Minnesota debt is allocated between the parties in the same manner as assets may be allocated– equitably.   Any Minnesota divorce may have three sorts of debt:

  • Debts held in Party A Spouse’s name;
  • Debts held in Party B Spouse’s name’ and,
  • Debts held in both Party A’s name and Party B’s name.

What Debt Questions Should You Ask During a Minnesota divorce?

You ask the following of each debt:

1. Who incurred the debt?

2. When was the debt incurred?

3.  What was the purpose of the debt?

4. Did both spouses agree to incurring the debt?

5. Who did or who will benefit from the debt?

6. Who is better able to pay the debt in a Minnesota divorce?

How Does Minnesota Law Characterize Debt in a Minnesota Divorce?

Generally, Minnesota treats debt in a Minnesota divorce as follows:

Debts incurred prior to the marriage remain his or her separate debts provided both parties did not obligate themselves for the debt via contract or payment agreement.

Debts incurred  by one party during the marriage are not marital debts, but  there are two exceptions to the foregoing:

Debts incurred  by one party during the marriage that benefit the marital estate or are for necessary living expenses  are mutual obligations; and, medical expenses incurred by your spouse are mutual obligations.   The foregoing is true if you are living together when the debt is incurred.     If Party A or Party B runs up his or her credit card for gambling or porn, then an argument can be made that the debt is far from marital.

Joint debts incurred during the marriage  are those that both parties agree to; for example, a joint credit card, a signatory on the credit card, a contract for purchases ( car, secured loan for furniture or other purchases); mortgages, personal loans, equity lines of credit that both parties sign for are joint obligations.

Creditors have no interest in how property and debts are divided during a Minnesota divorce.  Creditors have one goal- to get paid from whoever has the resources or assets to pay the obligation.

In a Minnesota divorce, if Party A is assigned to pay the joint debt and doesn’t pay or pays late, then Party B’s credit is negatively impacted.  A Minnesota divorce decree doesn’t protect Party B’s credit.  Party B’s legal responsibility for joint debt to the creditor does not go away.

Another added complication in this mix is Party A cannot be held in contempt of court for failing to pay the assigned debt.  In Minnesota, a party to a divorce proceeding can only be held in contempt of court for failing to pay child support or spousal maintenance.

How Do You Protect Yourself in a Minnesota Divorce from Creditors and Assigned Debt? 

  • If an asset is a car and has a loan, then take the car and pay the loan or insist upon its sale.
  • If the asset is real property, then make certain that the party keeping the property refinances the mortgage and any other obligations on the property to remove your name.  You should set a deadline and if your name is not removed by the deadline, then the property is sold.
  • If you do not want to be responsible for the debt, and you are concerned that your spouse will not pay it, then insist that assets are used to pay off the debt before the divorce.
  • If there are no funds to pay off the debt before the marriage, then insist upon the sale of a marital asset and pay it off.
  • Insist upon indemnification language in the decree for any assigned debt.   The language should read:  “Party A will assume the debt to XYZ credit card and Party A shall indemnify and shall hold Party B from payment of the same. ”   This means that if Party A fails to pay and the creditor comes after Party B and he/she has to pay, then Party B can bring a motion in the divorce file asking for money from Party A for the debt paid.  Add a provision for attorney fees and costs to the party who has to go to Court for relief from payments to creditors that the other party was supposed to pay.

Additional Tips for Minnesota Divorce and Debt.

  • Run your credit report during the divorce for all major credit reporting agencies.  You may find some debt that you never expected; e.g.,  your spouse co-signing student loans for his girl friend’s children.

More Tips for Minnesota Divorce and Debt.

If you are getting married, then:

  • Check on your intended’s financial past and present. Prior to marriage run your credit and future spouse’s credit.  Enter into a pre-marital agreement documenting the debt and his or her responsibility for his or her separate debt.
  • Postpone the marriage until the debt is paid if your future spouse’s money issues are extreme. Give him or her time to clean up his or her credit, pay bills, or back taxes or file bankruptcy and have it discharged prior to the marriage.
  • Create an informal understanding of how debt will be incurred in the future and for what; generally, develop a marital financial plan that you both can live with.

If you are married, then:

  • Keep separate checking and savings accounts open even if you open joint accounts
  • Keep separate credit card accounts and do not allow the other party to name you as an authorized user or joint holder of the account
  • No joint credit cards
  • Apply for credit individually
  • Do not co-sign
  • Consider a post-nuptial agreement that outlines the debt situation and who will pay in the event of a divorce.

Mortgages usually require that both spouses sign so both spouses are equally liable.

If you like this post, I would love it if you would hit the “subscribe” button so that I may continue to share a variety of family law topics with you.  Please do share this post via the share buttons at the bottom of the page. Thanks for reading.

Kate Willmore, Saint Cloud, Minnesota, Divorce, Father’s Rights, Mother’s Rights, Family Lawyer, Family Court Lawyer and Mediation Coach

Call me at (320) 492-3606 or e-mail me via   www.katewillmorelaw.com

Copyright 2016

 

 

 

About Kate Willmore, Esq.

Kate Willmore, Saint Cloud, Minnesota, divorce, custody and family attorney brings over 25 years experience to every client's legal matter. *** Licensed in Minnesota and in California

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