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In a divorce you not only divide the marital assets but you also divide the marital debt. This may be a mortgage, credit cards, car loans, school loans. The divorce agreement will often itemize which party is assuming responsibility for each particular debt.

As an example: the wife had cosigned a student loan for her daughter and a car loan for her son. In the divorce agreement, the husband agreed to be responsible for the payment of both of those debts. The parties did nothing further and no additional explanation was given by the mediator or the attorneys. The parties divorced and all seemingly went according to plan.

One year later, two things happened: the husband lost his job and the wife decided she wanted to stop renting and buy a condo. Much to her dismay, she learned that the 2 loans counted against her in terms of her debt to credit ratio when applying for a mortgage. Worse, her husband stopped making payments and the creditors began coming after her.

When one party assumes payment of a debt, every effort should be made to refinance the loan in that party’s name alone. Otherwise, the other party remains liable regardless of what the separation agreement says. If refinancing is not possible, consider setting side a sum of money that will be released and divided upon satisfaction of the debt.

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