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Debts Aren’t Always Paid Just Because a Court Says So

June 2019

Persons going through a divorce need to know that debts ordered to be paid by the other party in a Final Decree of Divorce (“Decree”) might actually not get paid.  Some people believe a Decree covers all their concerns about a debt if it orders the other party to pay.  It is the law, after all.  But it is wiser to view a Decree as a document binding between just former spouses.  In other words, third parties that are owed money will typically look to their own contract documents and the persons named therein for satisfaction of the debt.  For example, if a debt is held in the wife’s name and the husband is ordered to pay it in a Decree, guess who the creditor comes after in the event of non-payment?  The creditor will pursue the wife, because the creditor’s documentation says it is the wife’s obligation.  In this scenario, it would have been important for the wife to know she cannot simply hold up the Decree to the creditor and say, “Go after my ex-husband.”  That simply will not work.  

Stated another way, a divorce court – and therefore the authority behind the Decree – cannot impair the rights of third-party creditors.  Third-party creditors have the right to hold accountable the people or persons they contracted with.  Those third-party creditors are not involved in the divorce process.  The divorce court has no jurisdiction over them.   

So what does a party do if a Decree orders the other party to pay a debt held in the first party’s name and there is failure to pay?  The answer is to take the matter to court.    This is an additional and costly process with results that are murky at best.   

A common scenario encountered is when a husband and wife purchase a home together during marriage and each are named on the mortgage documents.  If the house is not sold and one party is going to keep it, the party who is not awarded the house is still named on the mortgage documents.  This will not change unless or until: (1) the house is sold, (2) the mortgage is refinanced, or (3) the mortgage is completed paid off.  Until one of these three things happens, the party not awarded the home is exposed to financial risk in the event of default because their name remains as an debtor/obligor on the mortgage documents. 

There are many ways to try to address this problem and minimize the risk.  Sometimes, there are not sufficient resources to fully eliminate the risk given the priorities of the parties involved.  The point of this article is to make the party facing a divorce aware of some of the perils (on the front end of the process) related to situating debt between the parties in a Final Decree of Divorce so that risk can be minimized post-divorce.  

The intricacies of arranging the lowest risk to post-divorce debt will vary depending on the facts of the case. The Law Office of David A. Kazen can review each of these obligations with an eye toward maximizing benefits to the client and minimizing exposure to debt.  Call us for a private consultation if you need guidance regarding these issues.  

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