Dividing assets in a divorce is often a major concern, but what about debt? Many couples accumulate credit card balances, car loans, student loans, and even mortgages during their marriage. When it comes to divorce, determining who is responsible for these debts can be just as complex as splitting assets.
Understanding how debt is divided will help you protect your financial future and avoid unnecessary surprises. Let’s break down how different types of debt are handled in a divorce and what you can do to protect yourself.
1. Understanding How Debt Is Divided
How debt is handled in a divorce depends on the state you live in and whether the debt is considered marital or separate.
Marital Debt vs. Separate Debt
Marital Debt: Any debt incurred during the marriage, regardless of who took it out, is generally considered shared responsibility. This includes mortgages, car loans, credit cards, and personal loans taken out while married.
Separate Debt: Any debt incurred before the marriage usually remains the responsibility of the person who took it out. This can include student loans, credit card balances, or personal loans taken before getting married.
However, things can get complicated when debts taken before the marriage benefit both spouses. For example, if one spouse had student loans before marriage but both contributed to paying them off, the court may factor that into the division.
Community Property vs. Equitable Distribution States
The way debt is divided depends on whether you live in a community property state or an equitable distribution state.
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- Community Property States (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin): In these states, debt acquired during the marriage is usually split 50/50, regardless of whose name is on the account.
- Equitable Distribution States (All other states): Courts divide debt based on fairness, which doesn’t always mean equally. They consider factors like each spouse’s income, who benefited from the debt, and who can afford to pay it back.
2. Common Types of Debt and How They Are Divided
Mortgage Debt
If you and your spouse own a home together, the mortgage debt needs to be addressed. You have a few options:
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- One spouse may buy out the other and refinance the mortgage in their own name.
- The home can be sold, and the proceeds can be used to pay off the mortgage.
- If neither spouse can afford the mortgage alone, they may need to continue co-owning the house for a period of time.
Tip: If your ex is supposed to take over the mortgage, ensure they refinance the loan. Otherwise, your name could still be legally tied to the debt.
Credit Card Debt
Credit card debt can be tricky. If the card is in both names, both spouses are typically responsible for paying it off, even if one person racked up most of the charges. If the card is in one spouse’s name but used for marital expenses, a judge may still consider it shared debt.
Tip: Close joint credit card accounts before the divorce is finalized to prevent new charges from being added to shared debt.
Car Loans
Car loans are typically awarded to the spouse who keeps the vehicle. However, if both names are on the loan, the lender can still hold both spouses responsible for payments, even after the divorce.
Tip: If your ex is keeping the car, make sure they refinance it in their name only. Otherwise, late payments could hurt your credit score.
Student Loans
Student loans taken out before the marriage are generally considered separate debt. However, if student loans were taken out during the marriage, courts may decide that both spouses are responsible, especially if the loan benefited the household (e.g., increasing earning potential).
Medical Debt
Medical debt is usually treated as marital debt if it was incurred during the marriage, even if only one spouse received medical treatment.
3. How to Protect Yourself from Debt Issues in a Divorce
1. Gather All Financial Documents
Before negotiating debt division, collect statements for all loans, credit cards, and outstanding balances. Knowing exactly what is owed can prevent surprises.
2. Check Your Credit Report
Review your credit report to see which debts are under your name. This helps identify joint accounts that need to be closed or refinanced.
3. Close Joint Accounts
Leaving a joint account open after a divorce is risky. If your ex racks up new debt, creditors may come after you. Close all joint credit cards and remove your name from any debts that aren’t yours.
4. Get the Debt Division in Writing
Even if your divorce decree assigns certain debts to your ex, creditors don’t care about divorce agreements. If your name is still on the account, they can come after you for payments. Ensure your ex refinances or legally removes your name from joint debts.
5. Consider Working with a Financial Advisor
Divorce can be financially overwhelming. Consulting with a financial advisor or attorney can help ensure you’re making smart decisions regarding debt and asset division.
Final Thoughts: Protecting Your Financial Future
Debt is a major issue in many divorces, but with careful planning, you can protect your financial future. Understanding how debt is divided in your state, taking steps to close joint accounts, and ensuring debt responsibility is legally finalized can help prevent post-divorce financial problems.
If you’re facing a complicated debt situation, consulting a divorce attorney or financial professional can help you navigate the process and avoid costly mistakes.
