Debt Question

[2xLoser-]

What is the name of your state (only U.S. law)? Texas

I am filling out my own divorce papers, we agreed on who takes what bills, we have 2 credit cards from the same company, different accounts, we each took one, does the decree need to show account numbers?

 

[seniorjudge]

Q: I am filling out my own divorce papers, we agreed on who takes what bills, we have 2 credit cards from the same company, different accounts, we each took one, does the decree need to show account numbers?



A: When you are writing the judgment in your lawsuit, you need to be as specific as possible. Also, you need to understand that the judgment will have no effect on the creditors since they were not parties to the lawsuit. They can go after either one of y'all if either of y'all default.

 

[mistoffolees]

A: When you are writing the judgment in your lawsuit, you need to be as specific as possible. Also, you need to understand that the judgment will have no effect on the creditors since they were not parties to the lawsuit. They can go after either one of y'all if either of y'all default.

Exactly. The best course of action where possible is for all outstanding debts to be paid off at the time of the divorce and the account closed. That will ensure that there are no problems down the road.

If that's not possible, any or all of the following should be attempted:
1. Parties ask lender to remove one name from the loan docs. Lender is not obligated, but may do so if the remaining person has sufficient credit rating.
2. Loan can be refinanced in one party's name. If that's not possible (and it may not be for real estate depending on credit rating, income, etc), seriously consider selling the property and paying off the loan - even if it means a move.
3. If neither of the above is possible, then the person who is not responsible for the loan needs to have a very strongly worded agreement so that if the lender comes back on them, they have recourse against the person who is supposed to pay. That includes a collateral interest (NEVER sign a quit claim deed until you've been removed from the mortgage, for example). You may want to ask for other assets to be pledged, as well. The person also needs to get copies of the monthly statements so that they can take action as soon as a loan is overdue rather than waiting until it has impacted their credit report.

Clearly, you don't want to be in the position of #3, but if you have to, make sure you're protected at least by the items I've listed.

 

[2xLoser-]

Exactly. The best course of action where possible is for all outstanding debts to be paid off at the time of the divorce and the account closed. That will ensure that there are no problems down the road.

If that's not possible, any or all of the following should be attempted:
1. Parties ask lender to remove one name from the loan docs. Lender is not obligated, but may do so if the remaining person has sufficient credit rating.
2. Loan can be refinanced in one party's name. If that's not possible (and it may not be for real estate depending on credit rating, income, etc), seriously consider selling the property and paying off the loan - even if it means a move.
3. If neither of the above is possible, then the person who is not responsible for the loan needs to have a very strongly worded agreement so that if the lender comes back on them, they have recourse against the person who is supposed to pay. That includes a collateral interest (NEVER sign a quit claim deed until you've been removed from the mortgage, for example). You may want to ask for other assets to be pledged, as well. The person also needs to get copies of the monthly statements so that they can take action as soon as a loan is overdue rather than waiting until it has impacted their credit report.

Clearly, you don't want to be in the position of #3, but if you have to, make sure you're protected at least by the items I've listed.

I almost did the quit claim, friends of mine talked me out of it...

The other parties have been removed the debt and accounts closed, there is still a balance, and 1 example of what I am dealing with is we have 2 Chase credit cards, 1 i am keeping, 1 she is keeping... both in my name, the accounts are closed, so in the decree do I put the account number, and if so, the decree is public record and it will have the credit card numbers in it, what do I do?

I have an attachment 105.006 with both of our socials, driver liscense numbers... and put in the decree that, that is to be sealed... do i put footnotes or something saying that this credit card is this account, or do i put chase card ending in 1234.... ?

 

[LdiJ]

I almost did the quit claim, friends of mine talked me out of it...

The other parties have been removed the debt and accounts closed, there is still a balance, and 1 example of what I am dealing with is we have 2 Chase credit cards, 1 i am keeping, 1 she is keeping... both in my name, the accounts are closed, so in the decree do I put the account number, and if so, the decree is public record and it will have the credit card numbers in it, what do I do?

I have an attachment 105.006 with both of our socials, driver liscense numbers... and put in the decree that, that is to be sealed... do i put footnotes or something saying that this credit card is this account, or do i put chase card ending in 1234.... ?

The "Chase card ending in 1234" would be good.

 

[MFinancier]

What is the name of your state (only U.S. law)? Texas

I am filling out my own divorce papers, we agreed on who takes what bills, we have 2 credit cards from the same company, different accounts, we each took one, does the decree need to show account numbers?

You've been forewarned....Read all the other posts about how agreements to pay joint unsecured debt end up turning sour. If there are any other assets involved...pay off the joint unsecured debt FIRST.

 

[tuffbrk]

I almost did the quit claim, friends of mine talked me out of it...

The other parties have been removed the debt and accounts closed, there is still a balance, and 1 example of what I am dealing with is we have 2 Chase credit cards, 1 i am keeping, 1 she is keeping... both in my name, the accounts are closed, so in the decree do I put the account number, and if so, the decree is public record and it will have the credit card numbers in it, what do I do?

I have an attachment 105.006 with both of our socials, driver liscense numbers... and put in the decree that, that is to be sealed... do i put footnotes or something saying that this credit card is this account, or do i put chase card ending in 1234.... ?

What do you mean the accounts are closed? Did you have the balances transferred to new cards? If that's the case, you'd need to note that the marital debt on card ending 1234, agreed to be the responsibility of XX, has been transferred to a card in their own name. I'm presuming you just want to be certain that all marital debts are noted and their disposition agreed to, true? You're building in protection so that there could be no claim of withholding information at a later date?

 

[mistoffolees]

The other parties have been removed the debt and accounts closed, there is still a balance, and 1 example of what I am dealing with is we have 2 Chase credit cards, 1 i am keeping, 1 she is keeping... both in my name, the accounts are closed,

How are you keeping one credit card and she is keeping one if the accounts are closed?

If you have not closed the accounts, do so as soon as your attorney says it's OK. Leaving your ex with a credit card in your name is an insanely foolish move.

 

[2xLoser-]

How are you keeping one credit card and she is keeping one if the accounts are closed?

If you have not closed the accounts, do so as soon as your attorney says it's OK. Leaving your ex with a credit card in your name is an insanely foolish move.

Sorry, the accounts are closed, but she will be paying 1 card, and 1 will pay the other, I just wanted to know how to differentiate them into the decree so i dont end up paying both.

 

[2xLoser-]

You've been forewarned....Read all the other posts about how agreements to pay joint unsecured debt end up turning sour. If there are any other assets involved...pay off the joint unsecured debt FIRST.

You are totally right, that never crossed my mind, I am giving her the house, she is going to sell it so that she can pay off all her debt with the equity (bout 60k in a soft market) and I will be stuck with balances for items I dont even own while she is living debt free....

I need to rethink this...

 

[mistoffolees]

Sorry, the accounts are closed, but she will be paying 1 card, and 1 will pay the other, I just wanted to know how to differentiate them into the decree so i dont end up paying both.

Someone else gave you the answer. I would advise that they either be paid off with assets available at the time of divorce or required to be paid off in a fairly short time. Otherwise, you could be back here in a few months asking how to deal with an ex who won't pay off the credit cards he was supposed to pay. And make sure you get the statements so you know they're being paid.

 

[LdiJ]

You are totally right, that never crossed my mind, I am giving her the house, she is going to sell it so that she can pay off all her debt with the equity (bout 60k in a soft market) and I will be stuck with balances for items I dont even own while she is living debt free....

I need to rethink this...

What are you keeping in exchange for the house? If its your 401k, for example, then re-thinking that means that you may have to divide your 401k.

Basically, you need to tally up all of the marital assets, and all of the marital debts and you should each end up with 1/2 of both, or a combination that nets to the equivalent.

Just because she will be living debt free, and you won't, doesn't necessarily mean that you should be rethinking your current plan.

I kept all our marital debt when my ex husband and I divorced, but I also kept all our marital assets as well (they were roughly equivalent). It didn't bother me in the least that he was living debt free, because he and I both knew that I would do a better job of protecting our respective credit scores.

 

[mistoffolees]

What are you keeping in exchange for the house? If its your 401k, for example, then re-thinking that means that you may have to divide your 401k..

Remember that $1 in the 401K is worth less than $1 in other assets since the 401K is pretax money and will be taxed on withdrawal.

 

[LdiJ]

Remember that $1 in the 401K is worth less than $1 in other assets since the 401K is pretax money and will be taxed on withdrawal.

Not if its divided via a QDRO, in that instance, the other spouse would pay their own tax bill.

 

[mistoffolees]

Not if its divided via a QDRO, in that instance, the other spouse would pay their own tax bill.

That's not correct. Not even close. If you offset equal amounts of pre- and after-tax incomes, the result is unfair whether you use a QDRO or any other method. It is the inherent effort to equate pre- and after-tax value which is fundamentally flawed. Using a QDRO as the mechanism doesn't fix that.

Let's say the wife has a bank account with $50 K in cash and the husband has a 401K with $100 K in value. Now, they split them separately and equally. The wife gives up $25 K in after tax value while the husband gives up $50 K in PRE-TAX value. So, if you split it this way (which is the correct way), they each have $50 K in pre- tax and $25 K in after-tax value.

If you say that the wife keeps the $50 K in cash and the husband gives her $25 K from the 401K via QDRO, then the wife has $50 K after tax and $25 K pretax while the husband has $75 K in pretax. Using a QDRO to divide the 401K doesn't make it fair.

Equal dollar values are NOT EQUAL if one is pretax and the other is after tax. The only way to divide it correctly is one of the following:

1. Divide the pretax and after tax amounts separately. In the above example, they each get $25 K in after tax cash and $50 K from the 401K.
2. If you must offset pretax and after tax moneys, you need to correct for anticipated tax rates (which is really no better than a guess). In the above example, the wife would keep $50 K in after tax plus something like $5-10K of the 401K.

Simply saying that if you use a QDRO it becomes fair is misleading, at best and by most interpretations just plain wrong.