How to Deal with Joint Debts and Loans in a High-Net-Worth Divorce

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The divorce process may be more manageable for average couples, assuming there are fewer assets and debts to split between parties. However, high-net-worth divorces often involve dividing many valuable assets, joint debts, and loans. If you encounter this type of divorce, it’s essential to understand the unique considerations of your situation. Due to the financial complexities involved, a high-net-worth divorce can be significantly more challenging than a conventional divorce, despite the legal proceedings being the same. It’s critical to understand how to handle your debts and loans in your type of divorce case before beginning the procedure.

California law requires that any debts accrued during the marriage that benefited the marriage be divided in the divorce, resulting in an equal division of debt. Frequently, high-net-worth couples have more non-traditional assets and loans that can be difficult to value and divide. There are steps you can take to ensure the best possible outcome for dividing your marital debt. These include giving your lawyer accurate and complete debt information and asking them to write future protections into your divorce decree if your spouse refuses to pay their share.

The most common forms of debt are mortgage debt, home equity lines of credit, auto loans, credit card debt, student loans, and medical debt. You are still responsible for any obligation in your name during a divorce. For example, if you and your spouse had a joint credit card, you are just as liable for that debt as your spouse.

Credit card debt will be divided as part of the overall division of the community property and debts. When allocating debts, the court considers what is fair in your case. If your spouse has exclusively used a credit card for purposes that did not benefit the family, such as gambling, talk with your attorney. In most cases, the court will not review a lengthy history of how you and your spouse used the credit cards, but there are exceptions. In most cases, the court will order each party to be responsible for their post-separation debts unless the debts continue to benefit the community. Regardless of how the debts from your marriage are divided, you will gradually build financial resources after your divorce is final.

If you’re listed as borrower or cosigner of a loan, then you should expect to be the one responsible for the debt. Even if you’re divorced, and your ex agreed to take care of the debt, your credit will be the one at risk if they decide to no longer make the payments. You should also be aware that you will be responsible for any late fees and collection charges as a borrower or co-signer. If you and your former spouse borrowed money together before splitting, then your credit is at risk if the debt is delinquent. If one of you fails to pay, the other will be responsible for both of you. Many times, people can work out a plan to divide the debts through mediation or with the judge’s help.

The best way to simplify your debt situation is to pay off your loans before finalizing the divorce. Use cash or available savings to get rid of debt before the divorce is final. If that’s not an option, try to reach a compromise by splitting obligations so that one spouse makes the car payment, for instance, and the other is paying the mortgage.

Or, refinance the debts to remove the other spouse’s name so the joint liability is extinguished.

If you are embarking on a high-net-worth divorce you will want to seek the guidance of a financial advisor and a family law attorney. Schoenberg Family Law Group, P.C., is highly equipped to handle complex property division. Our San Francisco divorce lawyers litigate high-net-worth divorces throughout the Bay Area, serving clients with a wide range of financial issues, from those holding simple assets to those managing multimillion-dollar marital estates. We have the legal acumen to address the diverse portfolios of high earners, such as entrepreneurs, executives, professionals, venture capitalists, entertainers, and their partners. To speak with one of our experienced San Francisco attorneys about the issues specific to your divorce or legal separation, please get in touch with the firm today.

By Debra Schoenberg


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