In a Nutshell

Divorce is expensive and stressful. You must pay the cost of hiring a divorce attorney and any associated fees. Having signed up a prenup agreement before marrying can help protect your assets and reduce financial strain. But your divorce may not turn out the way you want it, and it can add to the debt you already owe.

So, how is debt handled in a divorce? Splitting assets between married couples is a priority, but how you handle your debt during your divorce can have financial implications lasting years.

This guide explains everything you need to know about what happens to debt when you divorce and divorce debt relief strategies to get out of debt so you can move forward with your life.

What Happens to Debt When You Get Divorced?

The financial situation of every divorcing couple is unique. Several states in the U.S. have an equitable distribution where courts consider the couple's finances when dividing debt. Any debt that is incurred separately is the sole responsibility of the spouse who incurred it.

In these states, debts and assets are split with the ability to pay and fairness in mind. A spouse with a higher income or more property may be assigned more debt.

In states with community property laws, such as Arizona and Wisconsin, any debt incurred during the marriage is divided equally according to state laws. There are other laws and restrictions that may make it more complex.

Here’s how different types of debts are handled during a divorce.

Credit Card Debt

In most states, you will be responsible for the debt if the credit card is in your name. In states with community property, both parties will divide the debt equally because credit card lines of credit are considered community property in a marriage. The debt incurred through using them is considered as each spouse owes an equal share of the total outstanding balance.

In most cases, both parties will be responsible for the credit card debt in a joint credit card account. This is true regardless of who made the payments or used the card.

When the credit card is jointly held, you can’t remove your name from the account. You’ll first have to pay off the balance or transfer the balance out of the account before you can close the card. Once the account is closed, however, it cannot be reopened again without the consent and signature of both spouses. 

With most credit card lenders today, once a credit card account is legally closed, from an administrative standpoint, it is closed permanently and cannot be reopened even with both of the cardholders’ consent. They will usually have to submit an application for a brand-new credit card account.

Cosigned credit cards will be treated like any other debt in community property states, so they will be split equally. A judge will use their own discretion in common law states.

Medical Debt

In community property states, any medical bills that are incurred during the marriage are considered as accrued equally by both spouses. Thus, they will be divided equally during the divorce proceedings.

Another reason why medical debt may be equally divided is because of the “doctrine of necessaries.” It states that a person is responsible for any costs incurred for the wellbeing of their children and spouse.

Couples can negotiate the medical debt or have the court determine fair division based on other factors.

Bankruptcy

If your former spouse files for bankruptcy post-divorce, it can affect you.

When your spouse files for bankruptcy, it will eliminate their liability for any joint debt you have. But even though your spouse is relieved of the debt, the debt will not be erased. You will still be responsible for this joint debt from your marriage if you haven’t filed for bankruptcy after the divorce, the same way your spouse did.

If you are required to make alimony and child support payments as part of a divorce decree, bankruptcy will not eliminate these payments.

What Is Divorce Debt Relief?

Divorce debt relief refers to any debt relief measure that allows you to deal with debt. These relief strategies include divorce debt consolidation, settlement, debt counseling, debt management plans, and more.

If you are planning for a divorce or are already divorced and dealing with these financial challenges, consider divorce debt relief.

3 Proven Divorce Debt Relief Programs 

Start with a clean slate after your divorce by taking care of your debt. These debt relief programs can help you.

1. Debt Settlement Programs

If you have overwhelming debt and no means to pay it all off, a debt settlement program can help you. Reach out to a debt relief company so they can negotiate with your lenders to agree on a settlement amount. This will allow you to settle your debt for less than what you owe.

Debt settlement programs are helpful because they can help you save up to 50% on your original debt before fees. You will also be able to pay off your debt faster because of this reduction in your balance(s) due.

A final thing to consider is that if you are looking to enroll credit card debt into a settlement program, but the debt is in two parties' names, both will be required to enroll. 

For example, if someone else is an authorized user on a credit card, both must enroll in a debt settlement program. This also applies when it comes to credit counseling and bankruptcy as well.

2. Debt Consolidation

When you are left with multiple unsecured debts after divorce, such as credit cards, personal loans, and medical bills, divorce debt consolidation may be a practical solution. With this option, you can consolidate all your debt into one loan for ease of repayment.

If you have good to excellent credit (typically, a FICO score of 680+), you may be able to qualify for a debt consolidation loan with a low APR. Another option is to apply for a 0% APR balance transfer credit card.

Before you opt for the 0% interest rate credit card, it is crucial to ensure that you can pay off all your debt within the set timeframe to avoid incurring interest. Read the terms and conditions before you transfer your debt to the credit card.

3. Debt Management

With a debt management program, you will be able to get the help of a professional who can advocate and negotiate with your lenders on your behalf.

Debt management companies can enroll you in a suitable program with monthly payments that align with your budget. In many cases, they can also negotiate with your creditors to ask for lower interest rates or reduce penalties and fees.   

Alternatives to Divorce Debt Relief Programs

If none of the debt relief options listed above are suitable for your current financial circumstances, there are alternatives available. Regardless of your situation, it is always possible to regain control of your finances.

Divorce Debt Counseling

If you have trouble managing your debt after divorce or are facing financial hardship, you want to consider credit counseling. There are many nonprofit and for-profit debt counseling companies that can help you explore all your options.

Sometimes, the solution might just be to take a deeper look into your finances and work out a budget. A credit counseling agent can go through the details of your debt and your budget to help you figure out which debt relief program is the best for you.

Look for a credit counselor who has experience dealing with divorce debt. 

Bankruptcy

In rare cases, when your debt is unsurmountable, and you have no resources to pay off the debt you’re left with after your divorce, you may have to consider bankruptcy. This is a last resort that can help you eliminate your unsecured debts such as credit cards, personal loans, medical bills, and student loan debt. 

You can file for Chapter 7 or Chapter 13 bankruptcy, based on your situation, and this may allow you to discharge most of your unsecured debts.

It is important to consider that choosing whether to file bankruptcy is one of the most important financial decisions you will ever make. It will have a major impact on many areas of your life, including a negative impact on your credit reports and FICO scores for up to 10 years.

Filing for bankruptcy will also involve attorney’s fees and other fees that you will have to budget for if you consider this option.

When To Look For Divorce Debt Relief

You should seek divorce debt relief options at the earliest to avoid accumulating further debt and to avoid drastic measures like bankruptcy. This is particularly true if:

  • You have incurred staggering attorney fees.
  • You are struggling to be self-sufficient after divorce.
  • You are finding it difficult to meet your financial obligations after separation.
  • If you have inherited your spouse’s debt as a part of the divorce decree because you live in a community property state.

How Your Credit Score Is Affected by Divorce Debt Relief

Getting divorced is a major decision that can have a lasting impact on many areas of your life, including your financial obligations. Divorce doesn’t lower your credit score directly, but it may have an impact because of the short- and long-term changes in your overall financial health.

Divorce can cause missed payments on joint debts, which may impact your credit score. Additionally, joint credit cards could be unexpectedly or involuntarily closed during the process. You might also find yourself removed unilaterally as an authorized user from your spouse’s credit cards without prior notice.

All of these events can negatively impact your credit score, as well as effectively cut off these sources of spending for your daily living expenses.

Divorce debt resolution may sometimes impact your credit report, particularly if you opt for more serious measures, such as bankruptcy. On the other hand, sometimes, these extreme measures may be necessary.

During a divorce, you’re already dealing with a lot of stress and financial worry. Working with a company that isn’t well-reviewed or experienced will only make things worse. The best way to avoid these troubles is to ensure that you only work with reputed debt relief companies with good ratings and reviews.

Avoid working with any company that demands up-front payments, makes bold claims of eliminating all of your debt, or offers you guaranteed results.   

Consider Divorce Debt Relief Before You Get Divorced

The best way to avoid debt problems after your divorce is to address your debt situation well before you begin your divorce proceedings. When that is not feasible, you may have to come to an agreement with your spouse to split your obligations fairly.

We recommend getting qualified legal advice from an experienced divorce attorney if your finances are complicated.

Credit card companies and lenders are not parties to your divorce decree and only care about getting paid. Regardless of your divorce decree, if your name is on a credit card account or other debt, they will pursue you for getting paid. The best way to avoid any issues is by dissolving all your joint accounts before you decide to go to court.

Brad Reichert, debt expert and founder and managing director of Reichert Asset Management LLC, explains more about the steps you can take to secure your finances after a divorce: “The best first step to protect your good credit at the start of a divorce is to pay off and close all your joint accounts.” 

“If your soon-to-be ex-spouse is an authorized user on any credit cards, you, as the primary account owner, should immediately remove them from the account. Remember that the primary account holder named on the account is responsible for the bill regardless of who actually spends the money,” Reichert adds.