I’m not trying to be coy. But it does. The best laid plans of mice and men often go awry. Take for example a couple that lives down the street in my neighborhood. They were lucky enough to come into the market for a new home when the prize of the neighborhood went up for sale. They bought it and according to both, were prepared to retire in our quaint little hollow. But somewhere along the way, life happened. Somehow love turned to disdain, to hate and divorce reared its ugly head. Now I have a vacant house and an unkept yard to look at until the bank auctions it off. But we can save our discussion about that topic for a later date.
What I want to talk about is planning. Planning for the unthinkable. No one plans on separating, if they did, they would never enter into the union of marriage. So we play out our lives as if we will be a family unit forever. We buy china sets, and furniture, cars, and homes. A home is in all likelyhood the largest investment that you will make as a family unit. In most cases that investment is contingent upon the sustained survival of the marriage. In todays two earner household, rarely can one party finance the home on their own. To compound matters, when you sign your mortgage documents with your lender, you are agreeing that you will pay back this debt regardless of what may happen in your life. I can write a Marital Dissolution Agreement that say one party is responsible for the note after the divorce, but if that party defaults on the loan, you are still liable. This is because back when life was perfect you made a deal with the bank; the bank doesn’t care what agreement you made between yourselves.
If you or your spouse do default on the note, then the home will be foreclosed. Lets say that you owe $200,000.00 on your home, but at the foreclosure auction the bank sells it for only $125,000.00. Guess what, you still owe the remaining balance of $75,000.00. Here is where Bankruptcy can be a valuable tool. If you can pause for a second and rationally consider the possibility of filing a joint bankruptcy prior to the divorce process, you can give back the house to the bank, its called a voluntary surrender. The nice part is that you wont owe the bank a cent more. This only works if there is little or no equity in your home.
There is also an added bonus, once you file bankruptcy you wont need to worry about separating your debts in the divorce. Most people only consider dividing their stuff, or assests, but you must separate the bad as well. If there is substantial marital debt, a joint bankruptcy, prior to divorce, could shorten the unholy post divorce debt marriage.
These of course should always be last resorts. Counseling, be it finacial or marital will be infinetly cheaper. If you would like a free DVD on bankruptcy give me a call, or watch the readers digest version here. Your neighbor will thank you.