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Tuesday, July 8, 2014

Shielding Yourself From Your Deceased Ex-Spouse's Debt

It's common following the death of a former spouse to be struck by a flood of mixed emotions.

What also strikes many people is that they may suddenly become burdened by their ex-spouse's debt.  Our New York City divorce lawyers know this often comes as a complete surprise for exes, particularly when the divorce agreement was clear about which party would be responsible for which debt.

The problem is that agreements between former spouses - including court-ordered divorce agreements -are not binding on creditors. The bank is only looking at the names on the original credit agreement or loan. There is little concern from the creditor regarding who actually pays - so long as someone pays. If your name is still on the agreement, that someone is more than likely going to be you.

Given that money issues are often a great source of contention leading to divorce, this problem arises with a fair amount of frequency. People breathe a sigh of relief when the final divorce documents are signed, thinking they'll no longer have to deal with the other person's poor financial decisions. But unless decisive action is taken by your divorce lawyer at the time of a split, you may find that is not entirely true.  

In cases where both parties are alive, if one doesn't abide by the agreement, the other can take him or her to court to enforce the order. However, creditors don't recognize divorce agreements, as they aren't party to them.

This is true no matter where you live in the U.S., though it could be worse if you lived in a community property state, where all assets and debt acquired during the marriage are considered as belonging equally to each spouse.  New York, as an equitable distribution state, is not one of these. But that doesn't mean this won't be a problem if your ex passes before the debt is paid off.

Options for those in this situation are limited: File a claim against your ex's estate (and hope that it's solvent), pay the bill or file for bankruptcy (in extreme cases). 

We understand none of these options are especially desirable. The good news is they can be averted - but only if both parties engage in proper planning prior to and during divorce. 

It involves eliminating your personal liability for debts assigned to your spouse at the time  of the divorce. This is sometimes referred to as an "accord and satisfaction" or a "novation" directly with the creditor. These agreements serve to free you from any responsibility to continue paying a debt - regardless of what happens to your spouse.

Bear in mind, however, that creditors often aren't game for this unless it can be shown your ex has sufficient funds and/or assets to be able to cover the debt on his own. But attempts should be made with any creditors holding debt for which you might otherwise be liable. It's the only way to circumvent the possibility of being made responsible for the entire balance should your ex pass away. 

If you are contemplating a divorce in New York City, call our offices at (718) 864-2011.

Additional Resources:

Your dead ex-spouse's debt can become your problem, June 25, 2014, By Jeanne Sahadi, CNN Money

More Blog Entries:

In re: Thomas - Bankruptcy Court Deems Mortgage Lien Non-Dischargeable "Domestic Support Obligation," June 24, 2014, New York City Divorce Lawyer Blog

In re: Thomas - Bankruptcy Court Deems Mortgage Lien a Non-Dischargeable "Domestic Support Obligation" - See more at: http://gilmerlegal.com/lawyer/2014/06/24/Bronx-Divorce-Lawyer/In-re-Thomas---Bankruptcy-Court-Deems-Mortgage-Lien-a-Non-Dischargeable-Domestic-Support-Obligation-_bl13947.htm#sthash.khvNT8lr.dpuf 


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