CDA CDA Debt Division & Credit Issues in Divorce 1 — Questions and Answers
Question 1: In most U.S. states, which type of debt incurred during marriage is typically considered marital debt?
- Only debts in both spouses' names
- Debts incurred for marital benefit regardless of whose name is on the account (Correct answer)
- Only mortgage debt on the marital home
- Only credit card debt with balances over $5,000
Correct answer: Debts incurred for marital benefit regardless of whose name is on the account
In most states, debt incurred for the benefit of the marriage during the marriage is considered marital debt regardless of whose name appears on the account.
Question 2: What is a 'hold harmless' or indemnification clause in a divorce decree related to debt?
- A court order freezing all joint accounts during proceedings
- An agreement where one spouse assumes a debt and protects the other from creditor claims (Correct answer)
- A lien placed on marital property to secure debt repayment
- A penalty imposed on a spouse for hiding marital assets
Correct answer: An agreement where one spouse assumes a debt and protects the other from creditor claims
A hold harmless clause requires one spouse to assume a debt and indemnify the other if the creditor pursues them for payment.
Question 3: Why is a divorce decree's debt assignment NOT binding on third-party creditors?
- Because creditors must separately approve all divorce settlement terms
- Because the divorce decree is a contract only between the spouses and not binding on creditors (Correct answer)
- Because state law prohibits such assignments to protect the credit industry
- Because federal bankruptcy law supersedes all state divorce decrees
Correct answer: Because the divorce decree is a contract only between the spouses and not binding on creditors
A divorce decree binds only the spouses; creditors are not parties to the divorce and retain the right to pursue either party on a joint account.
Question 4: When divorcing spouses have a joint mortgage but only one will keep the home, what is the recommended action for the departing spouse?
- Execute a quitclaim deed to transfer title and consider the matter resolved
- Refinance the mortgage solely into the keeping spouse's name to release the departing spouse from liability (Correct answer)
- Have the divorce decree assign all mortgage obligations to the keeping spouse
- Immediately pay off the remaining mortgage balance at closing
Correct answer: Refinance the mortgage solely into the keeping spouse's name to release the departing spouse from liability
Refinancing the mortgage in only the keeping spouse's name is the only way to fully release the departing spouse from ongoing mortgage liability.
Question 5: What happens to a joint credit card account when one spouse is ordered to pay it in the divorce decree but fails to do so?
- The credit card company must forgive the debt under divorce protection statutes
- The other spouse's credit may be damaged and the creditor may pursue them for repayment (Correct answer)
- The divorce decree automatically closes the joint account upon finalization
- The creditor is required to sue the assigned spouse exclusively before pursuing others
Correct answer: The other spouse's credit may be damaged and the creditor may pursue them for repayment
If the assigned spouse fails to pay, the joint account creditor can pursue the other spouse and potentially damage their credit, since creditors are not bound by the divorce decree.
Question 6: Which type of debt is most likely to be characterized as separate (non-marital) debt not subject to division?
- A mortgage taken out jointly during the marriage for the marital home
- A student loan taken out before the marriage for pre-marital education (Correct answer)
- A credit card used primarily for household expenses during the marriage
- A car loan for a vehicle regularly driven by both spouses
Correct answer: A student loan taken out before the marriage for pre-marital education
Debt incurred before marriage is generally considered separate debt and not subject to division in divorce.
CDA CDA Debt Division & Credit Issues in Divorce 1
In most U.S. states, which type of debt incurred during marriage is typically considered marital debt?