Key Takeaway:

Divorce comes with a lot of emotional and financial stress. This guide will give you the insight you need to understand how divorce debt is divided and the things you need to consider to reduce the debt burden.

One of the biggest sources of stress in a marriage is finances. The same holds true even in divorce.

During the course of your marriage, you may have accumulated a lot of debt in the form of credit card debt, personal loans, student loans, mortgages, auto loans, and more.

Knowing how divorce debt is divided between the partners is important. This will provide you with a better understanding of what liabilities you may be responsible for if you are considering divorce.

This short guide will shed light on the most common issue in a divorce, which is called marital debt, and how to deal with it.

What is a divorce debt?

A divorce debt or marital debt is the part of debt a spouse incurs after their marriage ends up in a divorce.

For example, say a married couple cosigns and takes on debt. If the couple wants to obtain a divorce and live separate lives, the liability of repayment of this debt will now be shared in appropriate proportions between these two individuals.

Courts decide the actual 'split' after hearings and contemplation during the divorce proceedings. However, the legal procedure is somewhat complex, and the laws vary from state to state.

For example, in community property states, community debt is split 50-50. Whereas in other states, the court decides the appropriate percentage of liability for each spouse for joint debts.

So local state law plays an important role in determining the divorce debt in a person's name, for example, if you had a prenuptial agreement.

Most people think that property and assets are the first points of focus for equitable distribution after filing a divorce case, but debt division is the first factor taken under consideration.

Who is responsible for the debt after a divorce?

Whoever has taken the debt is responsible for repayment after a divorce. If you have taken a debt personally in your name, you are responsible for paying it back.

On the other hand, if both spouses have taken a debt jointly (by cosigning), they may share the repayment equally.

Additionally, creditors will turn to the other partner for collection if one partner cannot make their monthly payments in joint debt.

The exact share of each spouse can vary significantly from case to case, depending on the state you live in. In states with equitable distribution, the courts will consider the couple’s finances. Any debt that is incurred separately will be the sole responsibility of the person who took it on.

'Equitability' does not always mean equal 50-50 sharing, but rather a fair division.

Here are a few factors which are taken into consideration by courts when dividing property and debts in the divorce decree:

  • Contribution of the spouses in debt
  • If the debt was incurred pre or post-marriage
  • Reasons why the debt was incurred

States like Wisconsin and Arizona have community property laws. This means that any debt incurred during the marriage will be equally divided according to state laws.

Types of Debt and Responsibility

Let's understand how different types of debts are affected by divorce debt and things you should keep an eye out for.

Credit Card Debts

Each spouse is responsible for their credit card debts if the card is in their name. However, the credit card debt of both partners that originated during the marriage is split 50-50 if you live and file a divorce in a 'community property' state.

Both spouses will bear the debt equally for debts on joint credit card accounts, regardless of who used the card more.

If you are planning to file for divorce, make sure to close all joint debt accounts and credit lines with your spouse and take a separate debt for your needs.

Auto Loans

The partner who owns the auto loan is usually responsible for repayment. However, in the case of joint ownership, one partner will take ownership of the vehicle and the debt.

In some cases, if the lender agrees, you can refinance the car loan to one partner.

However, even if one partner takes the car, the other will be compensated equally with any other asset through the court's settlement.

Mortgage Debt

Joint mortgage debt would be an equal responsibility of both partners if they took the debt after marriage. Whereas, if the house is in one partner's name, the court will consider the couple's current financial situation to figure out the splitting of debt.

You must also be aware that the title of a house and the mortgage are two different things. If you share the title of a property as a co-owner but do not own the mortgage as a co-signer, make sure to have your name removed from the title after divorce.

If you and your spouse own the mortgage of your house collectively, the best approach is to sell the property and split the money.

Mortgage debts are usually the most complex to resolve in a divorce. So ensure you get legal advice from a family law attorney before making a move.

A few important considerations about debt and divorce

Here are some crucial facts you should be aware of when dealing with divorce debt:

  • In community property states, the debts taken during the marriage are split equally between spouses. In other states, the judge has more discretion to decide each spouse's liability percentage. 
  • If your spouse starts becoming delinquent, defaults on a joint debt, or has late fees on joint accounts, it will also affect your credit score. 
  • If your ex-spouse does not pay for shared debts, the lenders will turn to you for repayments. It also hurts your credit score, so your only option is to make the payments. However, keep a record of such payments so you can ask the court to issue a court order to your ex-spouse for reimbursement.
  • Try to pay off your debts before divorce, especially in joint accounts. If your divorce is imminent, transfer your debts to your name to avoid hurting your credit report later. For example, you cannot do much if your former spouse files for bankruptcy because lenders will always pursue the co-signer in such cases.

Almost 40-50% of all first marriages in the USA end up in a divorce, and financial problems (mainly debt) are among the top causes of this trend. This figure tells us that money management, especially debt management, is crucial to your well-being.

If you are struggling to manage debt or unable to pay it, you can opt for credit counseling to get expert financial advice. Additionally, you can look for advanced debt relief options like debt settlement or debt management programs if your financial situation has gotten out of control.