Can a divorce settlement protect against future credior claims?

On Behalf of | Jul 15, 2016 | Divorce, Firm News |

Choosing to end one’s marriage is a difficult decision with which comes the challenging task of strategically separating assets. How assets are ultimately divided in a divorce can have a major impact on one’s financial future. Some divorcing couples in New York and elsewhere may believe that the party to whom property is granted will be held solely responsible for that asset moving forward — such as a shared mortgage. Unfortunately, this is not necessarily the case.

When a mortgage has been signed and accepted by both spouses, in the eyes of the lender, each signer will be considered responsible for payments. This is true regardless of what is written in a divorce settlement. It is for this reason that many divorcing couples are advised to sell their properties if at all possible.

If selling to a third party or to the spouse who is granted the home is not a realistic possibility, the individual who was not awarded the marital home may still have some recourse if faced with a mortgage deficiency judgment in the future. This all depends on what is written in a divorce settlement. For example, a settlement can state that the spouse awarded the property will be responsible for making all mortgage payments until the property can be sold. If one fails to comply, he or she may be held in contempt for not abiding by the settlement terms. While this may not help in fighting a lender who is demanding payment, it can assist one in recouping any losses experienced as a result of having to pay for property he or she was not granted in the divorce.

At the end of the day, how a divorce settlement is written does matter and can have lasting consequences. It may not protect from dealing with potential creditor claims, but it can allow one to take legal actions against a former spouse in an effort to seek compensation for any damages sustained as a result of a deficiency judgment. With the assistance of legal counsel, divorcing couples in New York can achieve fair and balanced settlements that offer each party the necessary protections for all conceivable circumstances.

Source:, “Mortgage trumps divorce agreement“, Tom Resnick, July 10, 2016


FindLaw Network