Your Spouse Is Court Ordered To Pay A Debt, Are You Discharged From Your Responsibility?
This is one of the top misconceptions many people have. Many people believe that if the court orders your spouse to assume the responsibility for the mortgage payments, for example, the loan documents with the bank are also changed so your spouse is solely responsible for the debt.
Whether it is a mortgage, credit card or some other loan, if your name is on the debt before the divorce, you will continue to be responsible for the debt after the divorce has been completed. Just because the judge orders your spouse to pay for the debt does not change any personal responsibility you may have with the creditor if your spouse refuses or fails to pay. The divorce court does not have the ability to modify the contracts and obligations with your creditors.
"The divorce court does not have the ability to modify the contracts and obligations with your creditors."
In order to be actually released from your debt obligations, the release must be directly from the creditor and not through a divorce order. As the court has no authority to revise your responsibility for the debt with your creditors, you are in charge of contacting and negotiating with each credit to get their agreement to release you from the debt.
Molly & Gary's Example
Let’s use an example of how outstanding mortgages effect the fictitious couple of Molly and Gary who were recently divorced. For purposes of our example, Molly was awarded the homestead which is subject to a first mortgage to Wells Fargo and a home equity loan to Bremer Bank. The court orders that Molly take on the responsibility for both the mortgage and home equity loan.
After the divorce, Gary attempts to attain a mortgage to purchase a new home. However, Gary does not qualify for the mortgage because of his continued obligation under the mortgage to Wells Fargo and home equity loan to Bremer Bank. Upon realizing this glitch, Gary requests, and Molly agrees to attempt to refinance the mortgage to Wells Fargo and home equity loan to Bremer Bank to release Gary from his obligations.
"Gary does not qualify for the mortgage because" he is still responsible for the old mortgage
Despite her best efforts, Molly is only able to refinance the mortgage to Wells Fargo. Although this is enough to allow Gary to get a mortgage to purchase a house, he remained responsible along with Molly for the home equity loan to Bremer Bank.
Two years later, due to financial struggles, Molly is unable to continue to pay the monthly payments on the home equity loan to Bremer Bank. Shortly after stopping paying on the home equity loan to Bremer Bank, Molly declares bankruptcy and discharges her obligation under the home equity loan to Bremer Bank.
Molly stops paying the mortgage, declares bankruptcy and Gary is sued by the bank
Bremer Bank brings a lawsuit against Gary to collect the remaining amount due on the home equity loan. Gary objects stating that the court during Gary and Molly’s divorce ordered that that Molly, not Gary, is responsible for the balance of the loan.
Gary loses. Bremer gets a judgment against Gary for the remaining balance on the loan. In addition, Gary’s credit is substantially impacted as a result of the missing payments and remains individually responsible for the judgment Bremer Bank brought against him. Again, the court has no authority to modify the agreement Gary had with Bremer Bank for the loan.
The Bank wins a judgment against Gary for the balance of the loan
Depending on the language contained in the divorce order terminating Gary and Molly’s marriage, Gary does have the ability to bring a lawsuit against Molly as a result of her failure to pay the Bremer Bank home equity loan. But the damage has been done. Gary’s credit has been negatively affected and based upon Molly’s bankruptcy, it is probable that Molly does not have the resources to pay the amount of the judgment to Gary.