Turbo Takeaways

One of the biggest sources of stress in a marriage is the household’s finances. The same holds true, especially 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, mortgage loans, 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.

Who Is Responsible for Debt After a Divorce?

In most cases, when a married couple splits up, whoever has taken out the original debt is responsible for repayment after a divorce. Therefore, if you have taken up a new debt personally in your name, you can expect to be responsible for paying it back after you separate and then divorce from your spouse. 

On the other hand, if both spouses have taken a debt jointly (by cosigning or as co-applicants), they may share the repayment equally. Creditors will turn to the other partner for collection if one partner cannot make their monthly payments on 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” of assets and debt based upon the relevant circumstances. Here are a few factors that are taken into consideration by courts when dividing property and debts in the divorce decree:

  • Contribution of the spouses to paying down the debt
  • Which spouse took out the debt originally, if it wasn’t both
  • 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 50-50, according to state laws. 

What Is Divorce Debt?

Divorce debt or marital debt refers to any debt that is accumulated during marriage. Debt that you take on in your name before you get married is separate debt. 

For example, say a married couple cosigns on a loan and takes on a debt together. If the couple wants to obtain a divorce and live separate lives, the liability for repayment of this debt will now be shared in appropriate proportion between these two individuals. Each spouse will be equally responsible for the entire debt until it is paid off.

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

For instance, in community property states, community debt is split 50-50. 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 instance, if you had signed a prenuptial agreement.

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

Types of Debt and Who Is Responsible

Let's understand how different types of debts are affected by divorce 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 his/her individual 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’re planning to file for divorce, make sure to close all joint credit card accounts and revolving credit lines you own jointly with your spouse.

Take a separate debt in your name only, so you can have a source of credit available for your needs, both during and after your divorce.

Auto Loans 

The partner whose name is on the car 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 in the name of one partner. However, even if one partner takes the car, the other will be compensated equally with the award of ownership in another asset through the court's divorce settlement process.

Mortgage Debt

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

You must also be aware that the name(s) on the title of a house and the name(s) on the house’s mortgage loan are two different things. If you share the title of a property as a co-owner but do not have your name on the mortgage as a co-signer, make sure to have your name removed from the title after your divorce. This is important if your spouse is to be solely responsible for the mortgage loan going forward.

If you and your spouse own title to the house and are jointly responsible for the mortgage collectively, the best approach is to sell the property and split the proceeds from the same after the mortgage is paid off.

Mortgage debts are usually the most complex marital liabilities to resolve in a divorce. We recommend seeking legal advice from a competent, experienced family law attorney before making a move.

Debt and Divorce: Other Things To Keep In Mind

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

  • Division of property: 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. 
  • Delinquency: 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 until such time as the debt is paid in full or your name is removed from the loan/debt. 
  • Repayment of shared debts: If your ex-spouse does not pay for shared debts, the lenders will turn to you for repayments. Late payments also significantly hurt your credit score, so if you want to keep your good credit good, 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.
  • Joint accounts: Try to pay off your debts before divorce, especially in joint accounts. If your divorce is imminent, transfer any joint debts you expect to retain in your name after your divorce into your name as soon as possible now to avoid potential late payments hurting your credit report later. For example, you cannot do much to avoid the negative consequences if your former spouse files for bankruptcy after your divorce because lenders will always pursue the co-signer in such cases. 

Seek Professional Advice for Divorce Debt

38% of American couples report financial problems as a primary cause of divorce. 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.

Consider divorce debt relief options like debt settlement or debt management programs if your financial situation has gotten out of control.