Indemnity Agreements in Divorce

An indemnity agreement is sometimes called a “hold harmless” provision. It’s an undertaking from one spouse to the other — usually made about payment of a debt. The party making the indemnity is called theindemnitor, and the party receiving the indemnity is called the indemnitee.

Here’s the way a typical indemnity agreement would be worded in a divorce settlement agreement. The indemnity part is in red:

The Husband will receive the 2014 Toyota pickup truck, which is now owned jointly. The Wife will convey title to the Husband. The Husband shall be responsible for paying off the balance remaining against said automobile and shall hold the Wife harmless from any liability arising from indebtedness related to such automobile.

Think of an indemnity as a promise that “I’ll protect you.” The indemnitor is saying in effect that “I’ll pay this debt. And if for any reason I don’t, I’ll make sure you don’t experience any harm as a result of my failure to do what I promised to do.”

The primary problem with an indemnity is that it’s binding only as between the husband and the wife, not on third parties. So in the example above, if the Husband failed to pay the loan on the car, the loan company could still come looking for the Wife, and the Wife would still be legally obligated to pay the debt.

The Wife could always sue the Husband, but first she has to find him, then she has to get a judgment, and then she has to find something he owns that she can seize to pay the judgment. It’s not a pleasant prospect.

There are a couple of things you and your spouse can do to give you at least a better handle on whether you have continuing exposure for debt. All of this needs to be in writing:

  • The indemnitor can promise to provide the indemnitee copies of each monthly statement that describes the debt or can agree to provide the statements on the indemnitee’s request from time to time.
  • The indemnitor can promise that until the debt is paid in full (or the balance reduced below some designated point), the indemnitor will not take on any more debt. This is a helpful provision but difficult for the indemnitee to monitor.
  • If the debt is from a credit card or other revolving charge account, the indemnitor should agree to make no further purchases on the account. The best course is to block further purchases on the account.

Indemnities are helpful but incomplete. The best course by far is for the two of you to get disentangled as thoroughly as possible, as quickly as possible.