Negotiating Debt Through Mediation

In a divorce, everything needs to be divided – debts as well as assets. Divorce is a stressful time for everyone, but at the Law Office & Mediation Services of Elissa C. Goldberg, LLC, we try to make the process as smooth as possible so that both spouses can walk away with a fair settlement. In my experience in divorce law, mediation is often the route that leads to a faster and more peaceful resolution. 

The advantages of mediation

When a couple goes to court to settle their divorce, they essentially lose control. The judge will decide what he or she thinks is fair, whether you agree or not. In my experience, usually, neither spouse is happy with the result. This is why I encourage couples to use our mediation services whenever possible. 

In mediation, a mediator who is an expert in divorce law guides discussion between the spouses and advises on points of law. As a mediator, I do not give legal advice, but I inform you of legal issues and can give examples of solutions that have worked for others in the past. The mediator also helps facilitate the conversation and keeps things on track. This creates an atmosphere of cooperation that makes it possible to reach agreements faster and with more satisfaction and less expense than litigation. 

Mediation strategies with debt

There are important factors to consider when determining a fair distribution of debt. These include when the debt was incurred, what it was for, and who benefited most from the debt. The most common examples of debt include:

• Mortgage
• Line of credit
• Credit cards
• Auto loans
• Student debt

When dividing these debts, keep in mind the key factors: who incurred the debt, what it was used for, and who most benefited. Add to that each spouse’s income and ability to pay, and you should be able to come up with an equitable solution.

Mortgages and lines of credit tend to be fairly straightforward. If you lived in the house, and if the line of credit was used for renovations or expenses that the family benefited from, then each person’s income or ability to pay becomes the main consideration. 

Auto loans for family cars can be split, but often the person who gets the car in the divorce pays the balance or a larger portion of the loan. 

A number of factors affect the division of student debt. A debt acquired by one spouse prior to marriage is not automatically that spouse’s sole responsibility. If the education helped the marriage by providing for a better job and higher standard of living, both spouses benefit from the loan and should have some share in the debt. If the debt is for a child, however, usually the major consideration is each parent’s ability to pay. If possible, the child can take on some of the responsibility, if he or she is now working. 

Credit card debt can be tricky. Spending can be a very sensitive subject and is sometimes a factor in the deterioration of the marriage. But if the couple is in mediation, there is at least a desire to come to shared solutions. With careful and respectful mediation, I have seen such situations overcome and a fair distribution of credit card debt reached. 

After negotiation

Your debt issues don’t end with the divorce settlement. If your name is on the loan, you are responsible to pay, as far as the lender is concerned. The lender won’t care that your ex promised to pay half but didn’t pay this month. Even with loans that have both of your names, if your ex doesn’t pay, you’re responsible, and your credit score will be affected. 

So the negotiations must include restructuring debt, if necessary, to reflect who will be paying for it. This often requires the help of a financial expert. Both loans and deeds need to be changed to reflect the new ownership and payment responsibility. This should be clearly defined in your settlement, along with a clear time limit to get it done. Many couples take out consolidation loans to pay off existing joint debt and transfer the balance to their own separate loans. 

It’s my goal to help you reach a fair and equitable settlement without burning bridges so that you and your family can heal as quickly as possible and start afresh with as much money still in your pocket as possible. I believe in the value of mediation services. Contact me at my Doylestown, PA office, (215) 345-5259, for a complimentary initial consultation to discuss what is best for you and your family.