Debt and asset division is covered in family laws under the divorce section. There are different variations in the divorce laws that take to account a number of factors that affect the divorce process and in turn they will also affect the debt and asset division said an expert from Holtz Law. Some of these factors would include: the cases of infidelity and domestic violence or any other related issues that would affect the manner in which the divorce process would be handled. This means that the division of debt and assets process is in most cases covered during divorce and the divorce preparation process. There are three major steps that define the debt and asset division encompassed in the divorce process:
Planning or preparation
It involves gathering all the documents that will be required for the debt division process. These documents do include: all the loans that were applied for together which would also cover the mortgages, credit cards, tax returns, pay slips, any debts whether medical or legal or any other, title deeds and also log books. This is because the fair distribution of assets and debts considers factors like: income capacity, age and other relevant responsibilities.
After the preparation process is done, then debts are categorized either as marital (these are those that cover both parties and were acquired after marriage) or separate debts (those applied for by the individuals). Debt categorization can be divided further into: secured (these could be loans that are covered with surety or a guarantor), unsecured (these are the ones whose applications are not covered by any security like credit cards or legal bills) and tax related debts (this is tax returned to the state if the parties shared common returns). There is an opening in this stage to have an out of court settlement with the help of a mediator.
Assigning the debts
This is where the courts or the couple agree (for out of court instances) which debts one party takes and how they would be settled. Secured marital debts come first in line as its settlement is easy since it has security coverage. The security in most cases is sold to cover the debt. Buy-out refers to loan reapplication by the party that is entitled to keep the asset that served as security. After the secured marital debt is covered, then the unsecure marital and separate debts are sorted. Filing for bankruptcy could be taken as the last option for debt settlement. The tax debts in most cases are the ones covered last. It involves debt analysis and coming up with a payment plan for the debt.
It is important to understand the division of debt and asset process for efficiency.