NEW YORK (CNNMoney) — If you’re divorced and your ex-spouse dies, you might find yourself dealing with a range of emotions. You might be surprised to learn you may have to deal with creditors too.
After all, you assumed you were safe because your divorce settlement explicitly stated who should pay which debts accrued during your marriage.
But guess what? That was an agreement between you and your ex, not between the two of you and your creditors.
“No one asked the [creditors] to sign off on that,” said Los Angeles bankruptcy attorney Leon Bayer.
This is especially a problem in the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
With only some exceptions, community property states treat whatever is acquired after marriage and before legal separation as belonging to both spouses equally.
That means both property and debt.
And in a divorce, all community assets and debt are split between the two of you.
For example, say you and your ex-husband owed money to a creditor while you were married. The divorce settlement may have assigned payment of that debt to your ex. But if he dies before paying up, the creditor could come a-knockin’ on your door.
Your only recourse then is to pay the bill yourself, file a claim against your ex’s estate, and hope it’s not insolvent.
Such a situation may be averted, but only if you thought ahead.
At the time of the divorce, to erase your liability for the debt assigned to your ex, you could try to enter into what’s called a “novation” or “accord and satisfaction” with the creditor, said Utah-based estate planning attorney Geoff Germane of Kirton McConkie.
Such agreements effectively can release you from any further obligation to pay the debt.
But, Germane said, “a creditor is unlikely to be interested” in playing along unless the spouse assigned to pay the debt clearly has the money and can offer assets as collateral.
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