How Do I Get Out of a Personal Guarantee in a Divorce?
Only the lender can release you because a divorce judgment cannot do it for you.
A personal guarantee is a separate contract between you and the lender. The lender was not a party to your divorce case and did not agree to anything in it. So if the business goes to your spouse and the loan stops being paid, the lender may still come to you.
What a Missouri court can do is different and still worth a great deal. It can allocate responsibility between the two of you, order the spouse keeping the business to try to get you released, and order reimbursement if that effort fails and you take the hit.
Learning how to get out of a personal guarantee is therefore really three questions. Who can release you, what your former spouse can be ordered to do about it, and what happens if neither works.
What Is a Personal Guarantee?
A promise you signed in your own name to pay a company’s debt if the company does not.
It is a separate document from the company’s promise to repay, and it usually gets signed at a closing or inside a loan package, often by a spouse who has no role in running the business and has never seen the books.
Two features make it matter years later.
- It is your obligation, not the company’s. The business may be the primary borrower, but the guarantee gives the lender its own direct path to you
- It does not end when your involvement ends. Leaving the company, transferring your ownership or getting divorced does not by itself release you from the document you signed
That is how somebody who never looked at a balance sheet stays personally liable for a loan taken out by a business they did not run. The lender’s rights come from the loan documents, not from anything that happens later in a family court.
What Did Barth Actually Hold?
That a guaranteeing spouse may stay liable to the lender, and that the judgment can still require the other spouse to try for a release and to indemnify if the try fails.
Barth v. Barth, 372 S.W.3d 496 (Mo. App. W.D. 2012) involved closely held real estate development entities and a business called Northland Sports. Both spouses had personally guaranteed the business debts, and the judgment awarded the entities to the husband.
The Western District’s answer is the template worth memorizing. The husband was required to “exercise his best efforts to secure Wife’s release from the debts of the Entities and Northland Sports which the parties had personally guaranteed, and in any event to indemnify Wife for those debts.”
Take that sentence apart, because each clause is doing separate work.
- She may remain liable. The court observed she might, because the debts were owed to third parties not bound by the judgment
- Best efforts to secure release. The spouse keeping the business carries an affirmative duty to try to get the other one off the paper
- And in any event, indemnify. The duty to reimburse does not depend on the effort succeeding, which is what makes the provision worth anything
Compare that with what most settlements actually say. A clause reading only that your spouse will pay the business debts leaves you with a promise about payment and nothing about the guarantee itself.
Why Can a Court Not Just Release Me?
Because the lender is not in the room.
A Missouri family court decides the rights and duties of the two spouses in front of it. In Wilson v. Wilson, No. WD85210 (Mo. App. W.D. 18 April 2023), the court noted in a footnote that “Husband and Wife’s creditors were not parties to the dissolution proceeding,” and quoted Poteat v. Poteat, 632 S.W.2d 511 (Mo. App. 1982) for the principle that a creditor’s claim “does not originate in anything appearing in the dissolution action pleadings, nor will it gain or lose by the direct operation of any property disposition made in the dissolution decree.”
The allocation power itself is real. As Wright v. Wright, 1 S.W.3d 52 (Mo. App. W.D. 1999) puts it, a trial court “possesses the authority to distribute marital debts in the sense that one spouse may be assigned the primary duty to pay off the debt and hold the other spouse harmless on the same.” That wording originates in Hileman v. Hileman, 909 S.W.2d 675 (Mo. App. E.D. 1995), which Wright was quoting.
So you may end up with a real remedy against your former spouse and no defense at all against the lender. Our FAQ on whether a divorce decree stops the bank from calling you covers that split in more detail.
What Is the Difference Between Best Efforts and a Release?
A release comes from the lender and ends your exposure. Best efforts come from your former spouse and only create a duty to try.
Confusing those two is how a settlement looks safer than it is, and it is the single most common mistake people make trying to get out of a personal guarantee. Here they are in order of how much protection they actually give you.
- A release or novation. The lender agrees in writing that you are no longer responsible. This is the only thing that genuinely ends the exposure
- A refinance. The business or your former spouse takes new financing and pays off the guaranteed loan, which is usually the practical road to a release
- Best efforts. Your former spouse has to take reasonable steps to seek your release. It binds your former spouse and it does not bind the lender
- Indemnity. Your former spouse promises to reimburse you if the lender collects from you. It converts your exposure from a loss into a claim, which is better and is not the same as being out
Which of these is available depends on the loan, the lender and the health of the business. Ask for the first, plan for the third and fourth.
What If the Business Is Awarded to My Spouse?
Then you may have handed over the asset and kept the liability, which is the imbalance to fix before the judgment is entered rather than after.
Before you can get out of a personal guarantee you have to know how many of them exist, so start by finding every document that creates exposure and do not do it from memory. Business owners routinely have more guarantees than either spouse remembers. Business loans, lines of credit, equipment leases, commercial property leases, vendor accounts and any standalone guarantee.
Then work the list while the case is still open.
- Collect every guarantee and its loan documents. The guarantee, the note, the security agreement and every amendment
- Ask each lender for the current balance in writing. A number you were told on the phone is not a number you can put in a settlement
- Ask each lender what a release would require. Sometimes the answer is a refinance, sometimes it is a financial covenant, and sometimes it is nothing they will ever do
- Price the exposure into the property division. A guarantee is a contingent liability attached to an asset you are not keeping
- Keep the risk question separate from the value question. What the business is worth and what the guarantee could cost you are two different numbers
Our pages on divorce for business owners and high net worth divorce cover how business and financial interests move through a case, and our page on property and asset division covers the framework.
What Should the Judgment Say?
Considerably more than a line saying your former spouse will pay the business debts.
- A best efforts obligation that names each guarantee. A general reference to business debts is not enforceable against a specific document
- A deadline. A duty with no date on it is a duty that can be postponed indefinitely
- Indemnity and hold harmless language. Section 452.325.5 RSMo provides that terms set out in the decree “are enforceable by all remedies available for the enforcement of a judgment, and the court may punish any party who willfully violates its decree to the same extent as is provided by law for contempt of the court in any other suit or proceeding cognizable by the court”
- Security, where the exposure will last years. A lien, an escrow, an offset against another obligation, or life insurance on the paying spouse
- Attorney fees for enforcement. Otherwise enforcing the indemnity costs you money you cannot recover
- A notice provision. You want to hear about a missed payment from your former spouse, not from a collection letter six months later
Get the wording right before entry, because there is no second pass. Section 452.330.5 RSMo makes the property division “a final order not subject to modification,” with a narrow exception for qualified domestic relations orders.
On the enforcement side, Missouri has treated a decree’s property obligations seriously. In Yeager v. Yeager, 622 S.W.2d 339 (Mo. App. E.D. 1981), the court stated that a spouse’s conscious failure to make mortgage payments required by the property provisions of a decree should be enforced in the same manner as a failure to make maintenance or support payments, and it issued a peremptory writ of mandamus ordering the trial court to reinstate the motion it had dismissed. Note what Yeager did not do. It did not affirm a contempt sanction. The husband had already paid and purged himself, and the court left the contempt decision to the trial court’s discretion. Yeager is authority that such a motion must be entertained, not that it will succeed.
Our FAQ on hold harmless clauses in a divorce decree covers the difference between assigning a debt and actually protecting the other spouse from it.
What If My Ex Files for Bankruptcy?
Then a separate federal question opens, and the answer depends on which chapter they file.
11 U.S.C. Section 523(a)(15) covers a debt “to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record.” That is the paragraph a property settlement indemnity generally falls under.
Now read the opening of Section 523(a) itself. It applies to discharges under sections 727, 1141, 1192, 1228 and 1328(b). Section 1328(a), the ordinary Chapter 13 discharge, is not in that list, and Section 1328(a)(2) excepts only paragraphs (1)(B), (1)(C), (2), (3), (4), (5), (8) and (9) of Section 523(a). Paragraph (15) is absent from both.
That is the whole point in one sentence. A property settlement obligation that survives a Chapter 7 may be discharged in an ordinary Chapter 13. A domestic support obligation under paragraph (5) survives either way.
Missouri has read the paragraph broadly on one question that matters here. In Henderson v. Henderson, 389 S.W.3d 260 (Mo. App. E.D. 2012), a decree assigned an $18,400 U.S. Bank line of credit to the husband, he filed Chapter 7 about five months later, and the bank turned to his former wife. The court held that “the fact that the obligation is payable to U.S. Bank and not Wife does not remove the debts from the scope of Section 523(a)(15),” so long as the debts are payable for the former spouse’s benefit.
This is not bankruptcy advice and Bardol Law Firm does not practice bankruptcy. Anyone facing an actual filing needs a bankruptcy attorney on the chapter question. Our FAQ on discharging divorce debts in bankruptcy covers the family law side.
What Does the Judgment Not Do?
Three things, and each one is a place where people relax too early.
It does not cancel the guarantee. That is a contract you signed, and only the lender can release you from it.
It does not bind the lender. Section 452.330.1 RSMo directs the court to divide marital property and marital debts in the proportions it deems just, between the parties in front of it, and that is the limit of the exercise.
And it does not make your former spouse able to pay. An indemnity is a promise, not money. That is precisely why security, deadlines and specific loan identification are worth the argument at the drafting stage.
Ready to Talk Through a Personal Guarantee?
Working out how to get out of a personal guarantee is the part of a business owner divorce that most often gets left until last, and it is far cheaper to deal with while the case is open than after a missed payment.
Bardol Law Firm practices only family law and handles property and debt division for families in St. Louis County, St. Louis City, St. Charles County and Jefferson County. The rest of our family law questions and answers cover the surrounding ground.
Every client here has a named paralegal on the file, and we generally return calls within one business day.
Family Law, Simplified.
If your name is on a guarantee for a business you are not keeping, bring the loan documents to the first conversation. Contact Bardol Law Firm or call 314.918.0100.
This page is general information about Missouri law and is not legal advice. It is not bankruptcy advice. Every case turns on its own facts. The choice of a lawyer is an important decision and should not be based solely upon advertisements.