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Interim Allocation of Income and Expenses

Practice Areas

Allocation of Debt

Who Gets The Debt?

 

In a contentious divorce, the issue of how debt is allocated can be a flashpoint between divorcing parties.  New Mexico classifies debt as either “separate” or “community” and the criteria for this definition is set forth in our domestic relations statutes.  The underling facts of how, when and for what purpose and use the debt was incurred are all relevant to determining whether the debt is community or separate.  You will want to carefully discuss each debt with your divorce attorney.

 

Steps to Take Regarding Debt

 

If both parties are willing to work together to pay off all the debts in order to achieve a clean divorce or legal separation, then they may do so and use community and/or separate assets to pay off the debt. One party may agree to take responsibility for debts in exchange for receiving more assets from the division of marital property. It may also be possible to let the other party take responsibility for all the debts in exchange for receiving more assets from the property division.

 

It is important to note; however, that credit card companies are not bound by a settlement agreement between divorcing parties. Therefore, if the couple has joint credit card debt, the creditor has the right to demand payment from both spouses even if one spouse has agreed to take on the debt.

 

Protection from creditors post-divorce is an important aspect of any divorce, so a divorcing party should be sure to fully review this matter with his/her divorce attorney before finalizing any divorce settlement.  If your spouse takes some or all of the debt in the divorce in exchange for taking more of the community property, this could be a good deal but not if your spouse turns around and discharges this debt in a subsequent bankruptcy and some or all of this debt boomerangs over to you.  How you are protected from future failure of your spouse to service his/her debt from the divorce is just as important as how the debt is allocated in the divorce.

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8500 Menaul NE, Suite B-550
Albuquerque, NM 87112
t: (505) 243-0900
f: (505) 243-5785
Email: channa@nmdivorce.com

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