Divorce with current credit: what to do?

The Divorce It is a difficult phase in a couple’s life both emotionally and physically. During this separation, the spouses must resolve many issues, including those related to them Current credits. How to deal with debts contracted together during their union? What is the effect of real estate or consumer loans in the event of foreclosure?

How to divide debts during divorce?

When two people decide to end their marriage, the problems don’t stop immediately. Various financial aspects should be considered.

Current credit is an integral part of the elements to be considered in their general property and liabilities.

Depending on the type of marriage, common-law union, civil partnership or contract marriage, the rules may differ.

Marriage under a legal community regime

In the context of marriage without a specific agreement, the law basically applies to a reduced regime of acquisition community. This means that both partners share responsibility for debts contracted during the marriage, whether it is a loan for the purchase of real estate or consumer credit.

Marriage under the division of property regime

With a previously established marriage contract, only jointly incurred debts bind both spouses. This includes, for example, real estate loans taken out as a couple.

PACS or Common-Law Union

In a common-law couple, each partner takes responsibility for their personal debts. It is the joint loan agreement signed by both parties that is authoritative.

Maintain credit repayments after separation

After verifying their respective obligations regarding the loan taken, the ex-spouses must decide how to proceed to honor their commitments.

Maintain joint debt

If the spouses manage to reach an amicable agreement, they may decide to continue paying their debts jointly. However, this option has disadvantages, especially in the event of default by one of the co-borrowers, and is not always suitable for those wishing to create a clean slate of the past.

Uncoupling of credit

Another possibility is to ask the bank to modify the initial loan agreement so that only one party is now liable. This approach usually requires the agreement of both co-borrowers and may result in additional costs (eg mortgage guarantees).

Repurchase of balance

In a divorce context where one of the spouses wants to keep the real estate financed by the existing loan, they can pay the other an amount known as the balance to cover their share. This operation allows you to become the title owner of the property and therefore of the associated mortgage.

Refinancing as an alternative solution

To ease the transition after their breakup, ex-spouses can also consider Refinancing

their debts with other banking institutions. This option involves taking out a new loan, often on more favorable terms than before, paying off the initial creditors and thus starting over on a healthy footing. Using a credit broker or financial advisor can be helpful in this process.

Credit redemption and debt settlement

Another avenue to explore: credit repurchasing, in which the bank consolidates several loans to lower monthly payments and simplify budget management.

This solution can be interesting in the event of a divorce if the spouses have jointly taken out several loans during their union and each wishes to keep a specific asset that is being financed by them.

Tax consequences associated with debt distribution during divorce

A couple’s separation also brings about some important changes from a tax perspective, particularly with respect to current credits:

• Changes in family coefficients : Divorce or dissolution of civil partnership usually provides for the distribution of tax shares between ex-spouses, which may have consequences on their income tax. The bank must be informed of these developments in order to adapt the loan agreement accordingly.
• Deduction of loan interest : In case of real estate loan, the interest paid by each co-borrower is deductible from the income of their respective property. However, in case of decoupling of credit, only the person who has held the property can continue to avail this deduction.
• Tax credits and housing assistance
  : Certain financial support linked to work credit or main home occupation may be called into question after divorce.

So it is important to check these issues with a competent professional before deciding on managing your credit during separation.

Divorce and Consumer Credit: What Solutions?

Apart from real estate loans, it is also important to look at consumer loans taken out jointly during marriage. As with real estate loans, a couple can decide to pay off consumer debt jointly if they manage to reach an amicable agreement.

Whatever the solution concept, it is important to consider all aspects related to the sharing of credit in the event of separation to avoid possible disputes and subsequent complications.