How Are Debts Divided in an Illinois Divorce?

 Posted on July 12, 2023 in Divorce

Getting a divorce can be a grueling process, and it will require spouses to address numerous financial issues. Both spouses will want to make sure they will be able to support themselves on their own after their marriage ends, and they will also be looking to ensure that they receive a fair share of the property they own. However, when preparing for the property division process, one aspect that may sometimes be overlooked involves how debts will be divided between spouses. This issue can be very important, because it can affect both parties' financial futures. By understanding how debts may be addressed, spouses can prepare to resolve disputes during their divorce and reach agreements that will protect their financial futures.

The experienced attorneys of Weiss-Kunz & Oliver, LLC work to help our clients navigate the property division process and make sure that issues related to assets and debts are handled properly in accordance with Illinois law. We understand how difficult the divorce process can be, which is why we strive to provide legal advice that will ensure that our client's interests are protected during the divorce process. With our assistance, people going through divorce can address debt division issues and other financial matters and secure a positive outcome that will provide for their future success.

Addressing Different Types of Marital Debts

During an Illinois divorce, debts will be considered alongside marital property, and they may be divided between the spouses at the same time as assets are divided. Any debt incurred during a couple's marriage will generally be considered marital debt, regardless of whose name is on the account, who made purchases, or who benefited from the debt.

As with marital assets, courts will divide debts using the principle of equitable distribution. This means that debts are divided in a fair and just manner. To determine what will be fair for both parties, several factors may be considered, including the age and health of the spouses and the contributions both spouses made to their marriage and family. The court may also consider the parties' economic circumstances, including their ability to earn sufficient income to address debts and meet other financial needs in the future.

Multiple types of debts may need to be addressed during a couple's divorce, including:

• Home mortgages - If a couple owns a home together, it is likely that both spouses' names will be on the mortgage and title. If one spouse will be assuming full ownership of the home after the couple's divorce, they will typically need to refinance the mortgage and ensure that the other spouse will not be responsible for making mortgage payments. However, receiving approval for a new mortgage may be difficult, and a spouse will need to be sure that they will be able to make ongoing payments while addressing other needs.

• Auto loans - A couple may own multiple vehicles, and each spouse will most likely be able to retain ownership of the vehicle they primarily drive. If a vehicle has an outstanding loan, it may need to be refinanced to remove one spouse from the loan and ensure that they will not be responsible for making ongoing payments. If there is a significant disparity between the balances of different auto loans, this may need to be addressed during the property division process. For example, if one spouse's vehicle is nearly paid off, but the other spouse will be required to make payments on an auto loan for several more years, other marital assets may be divided in a way that will reflect this disparity. To ensure that a spouse will be able to cover payments on an auto loan, they may receive a greater portion of funds in a joint bank account.

• Credit cards - Purchases spouses made during their marriage that created credit card debt will usually need to be addressed during the divorce process. Even if a card is in one spouse's name, its balance will be considered a marital debt, and a couple will need to determine who will be responsible for paying off the balance. The only exception may be in situations involving the dissipation of marital assets. That is, if a spouse made purchases using a credit card that were for their sole benefit after the marriage had begun to break down irretrievably, they may be solely responsible for paying off these debts.

• Student loans - In many cases, a spouse who took out loans to pursue a college education or other forms of training will be responsible for paying off these debts. Because that spouse will receive the benefits of being able to pursue the opportunities that come with a college degree, they may be required to address the debts they have accrued to do so. However, if the other spouse also benefits from the education or training a person has achieved, the couple may decide that this debt should be shared. For example, if one spouse is able to earn a higher income than the other due to their college degree, and they will be paying spousal support to the other spouse, they may argue that both spouses are benefiting from these debts, and they may receive a larger share of marital assets to ensure that they will have the necessary financial resources.

Complications Related to the Allocation of Marital Debts

Debts may be divided in a variety of ways during the divorce process, but it is important to understand that regardless of the decisions made, creditors may still be able to pursue repayment from both parties. That is, if a couple has joint debts, and their divorce decree states that one spouse will be responsible for paying certain debts, creditors may disregard these decisions and attempt to collect debts from both spouses in the future.

This can be an issue in cases where spouses have joint credit card accounts or other types of debts in both parties' names. Certain types of joint debts may be allocated to one spouse, but if that spouse defaults on payments in the future, creditors may contact the other spouse to collect debts, or they may even pursue legal judgments against both spouses. In addition to financial difficulties and legal problems, these issues can impact the credit scores of both parties, affecting their ability to receive loans or other financial benefits in the future.

To avoid these issues, it is often recommended that spouses pay off debts during the divorce process whenever possible. This may be difficult to do, especially when one or both parties encounter expenses related to moving to a new home, legal fees related to divorce, and other changes in their lives. However, working together to address outstanding debts can allow both parties to move forward with their lives and take steps to achieve ongoing financial success.

Can a Couple File for Bankruptcy During Divorce?

In cases where a couple has significant debts, bankruptcy may be an option that will allow them to regain financial stability, and by eliminating debts, both spouses will be able to approach their post-divorce life free of major financial obligations. However, the timing of the bankruptcy filing has significant implications for both parties, and a couple may need to determine whether they will file for bankruptcy together or separately and whether it is best to file before, during, or after their divorce.

One of the key factors that may influence a couple’s decision to file for bankruptcy is the type of bankruptcy they opt for. Chapter 7 bankruptcy is often the preferred option, since it will allow unsecured debts such as credit card balances to be completely eliminated. However, this type of bankruptcy may require the couple to turn over certain assets that will be liquidated in order to pay off some of the debts they owe. By understanding what types of marital assets may be exempt from liquidation and how a Chapter 7 filing will affect them financially, a couple can determine whether this is the best option in their situation. If so, they may be able to complete a Chapter 7 bankruptcy before finalizing their divorce.

Chapter 13 bankruptcy may be a better option for spouses who wish to retain ownership of their assets or who plan to continue owning their home. However, this type of bankruptcy will require debtors to create a repayment plan in which they will make ongoing payments over a period of three to five years. If a couple files for Chapter 13 bankruptcy together prior to divorce, they will both be required to continue making payments toward their repayment plan. This may complicate the divorce process significantly, and it may be necessary to separate their bankruptcy into two individual cases. Because of these issues, it is often preferable to wait until a divorce is complete, after which either spouse can file for Chapter 13 bankruptcy individually.

As mentioned above, both spouses will be responsible for paying joint debts. If debts are allocated to one spouse in the divorce, and that spouse later files for bankruptcy, this will eliminate their obligation to repay the debts, and creditors may then seek payment of the debts from the other spouse. This issue can be addressed if both spouses file for bankruptcy together, which will eliminate both spouses' obligation to repay debts. If either spouse chooses to file for bankruptcy separately, the couple will need to understand how this may affect their obligations.

Another crucial factor to consider is the impact bankruptcy may have on spousal support and child support payments, which can be a critical aspect of a divorce settlement. While these domestic support obligations are considered to be debts owed by one spouse to the other, they cannot be eliminated through bankruptcy. All amounts owed will need to be paid in full, and any missed payments will need to be made up. However, bankruptcy may allow an ex-spouse to eliminate other debts and ensure that they will have the financial resources to meet their ongoing obligations. If an ex-spouse is behind on support payments, the past-due amounts may be included in a Chapter 13 repayment plan, allowing them to pay off the amount owed over time.

Contact Our DuPage County Division of Marital Debt Lawyers

Addressing marital debts during a divorce can be a complex process, and it is important for both parties to understand their rights and responsibilities. Couples have the option to negotiate a debt division agreement, but if they are unable to do so, they may resolve these and other outstanding issues through divorce litigation, and a judge may make final decisions about how assets and debts will be allocated.

To ensure a fair and just division of debt, it is important to work with an experienced divorce attorney who can provide guidance and representation while fighting to protect your financial interests. At Weiss-Kunz & Oliver, LLC, our Elmhurst debt division attorneys can make sure financial matters will be addressed correctly during your divorce, and we will work closely with you to make sure debts will be allocated in a fair and equitable manner. Contact us at 312-605-4041 to book a consultation and get the legal representation you need during your divorce.

Sources:

https://www.ilga.gov/legislation/ilcs/documents/075000050k503.htm

https://www.experian.com/blogs/ask-experian/how-to-handle-bankruptcy-and-divorce-at-the-same-time/