If you are considering a divorce, you probably realize that your life is about to get fairly complicated, at least for a little while. You and your spouse will need to work out a large number of considerations, which, depending on your ability to work together—or lack thereof—may lead to stressful negotiations. For many couples, dividing the marital estate can be among the most challenging of all divorce concerns. In addition to allocating assets to each spouse, a divorce agreement must also address marital debt, which may create a whole new arena for contentiousness. To avoid this, you and your spouse may want to consider paying off as much debt as possible prior to beginning the divorce process.
An important first step in deciding whether to payoff your marital debt is determining what constitutes such debt. In Illinois, marital debt refers to most financial obligations incurred by you or your spouse in the course of your marriage, with very limited exceptions. For most obligations, it is immaterial whose name is listed on the account; according to the law, if it was entered into during the marriage, the debt is likely considered marital. Upon divorce, outstanding marital debt must equitably allocated between you and your spouse as part of the division of property process.
Paying Off Debt
Eliminating financial obligations prior to divorce can offer couples the opportunity to streamline asset division considerably. There are, however, a number of factors that could affect your ability to pay off your debts, including:
- Liquidity of assets: Do you have cash sitting in an account that could be used to pay off your credit cards or would you have to sell something first? Either way, you may be fine, but it is something to thing about;
- Money on which to live: Your divorce is likely to cause more of a financial strain than you may anticipate. It is probably not a good idea to completely deplete your existing resources to pay off debt when you may struggle to meet your more immediate needs; and
- Cost-benefit analysis: You may have plenty of money in an investment account or 401(k) to eliminate many of your outstanding obligations. However, accessing those funds now may incur significant fees or tax penalties. In addition, if left in the account, the value of that money could increase a great deal by retirement, so it is up you to decide if paying down your debt is worth the extra potential expense.
In any divorce situation, there are countless factors that can affect your financial decisions, and each financial decision can, in turn, impact the final divorce agreement. Fortunately, a qualified family lawyer is equipped to help. Contact an experienced Illinois divorce attorney today to schedule a consultation. We will work with your in reviewing your situation and assist you in making the best decisions for your future. Our team is proud to serve clients throughout WillCounty and the rest of Northern Illinois.