What Happens To Debt In A Divorce?

If you're getting divorced, one of many tasks to tackle is coming to an agreement on how to deal with your finances, including your debts. Ideally, both of you will be debt-free after the divorce. However, the reality is usually the opposite. Getting a handle on your divorce debt includes knowing who is responsible for what in the eyes of the law and in written agreements like prenups.

What Is Divorce Debt?

Divorce debt is the process of dividing up financial obligations that you and your ex-spouse are responsible for. Debts are typically separated between ex-spouses during a divorce and depending on your state laws, some debts may need to be fully paid off when a divorce is finalized.

Types of debt that are typically separated during a divorce include joint loans, like personal loans with both spouses’ names on them, or a mortgage where both parties are on the deed. Debts with only one spouse’s name on it, or were incurred before the marriage may be divided equally depending on the state you live in.

How Is Debt Divided In Divorce?

The exact nature of what happens to debt in a divorce will depend on the state both you and your future ex-spouse live in and the laws within that state. There are two legal systems for handling and dividing marital debt in court: equitable distribution and community property laws.

Equitable Distribution

The equitable distribution system is where two parties try to come to an agreement on how to allocate property during a divorce, including debt that is in line with guidelines that are set by the laws in the relevant state. State laws may look at factors like the spouses' earnings (or potential income), sources of income, how much each contributed to the asset or debt, and both spouses' financial circumstances once all assets and debts are divided. 

For example, if you earn more than your future ex-spouse, you may have to shoulder some more of the debt. Or, if you have several joint personal loans, the courts may decide that you are deemed both equally responsible for them.

Some states may consider any misconduct a major factor in deciding how debts get divided up during a divorce. South Carolina, for instance, considers adultery as a major factor in how assets and debt are divided up. This is specially so if the misconduct resulted in the end of the marriage and affected the financial circumstances of either spouse.

That’s not to say the courts won’t end up dividing everything up by 50/50 if that’s what’s deemed fair. If you can, it may be best to work out an agreement to determine how you want to divide up assets and debt before finalizing the divorce.

Community Property

In community property states, all assets and debts that are incurred by either spouse while married to each other are divided equally in half. For example, if the both of you have a total of $65,000 in debt, you would each be responsible for $32,500 even if they're not joint debts. There are some exceptions, such as if you inherited property and it’s only in your name. Property you own before marriage may not be divided equally. However, it’s best to check with an attorney licensed in your state to understand how community property laws work in your state.

States with community property laws include:

Alaska (can opt in)

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Debts Incurred After Separation Vs. Before Divorce

If you or your spouse incurred debt after legally separating, but your divorce hasn’t been finalized, in most cases the debt won’t be your responsibility. However, not every state will recognize debt after legal separation as being separate. In this case, until your divorce is finalized, any debt your future ex-spouse may have taken on may also be your responsibility. However, it may be up to the courts to decide, so if you’re concerned about any unknown future debt, seek the help of a divorce attorney.

How Different Debts Are Handled In A Divorce

Not all debt is equal. Different types of debts are handled and separated differently in a divorce.

Mortgage Debt

How a mortgage loan is handled can be different depending on what both parties can agree to, and what the laws state. If both spouses' names are on the mortgage, both are ultimately responsible for the debt, even if one person ends up getting the house after the divorce. That is, unless a written agreement is made saying one spouse is responsible to choose between refinancing or selling the house.

Car Loan Debt

Auto loan debt is similar to mortgages in that it depends on how the asset is divided and the divorce agreement. If both spouses' names are on the auto loan, then both can decide to sell the car and divide any proceeds. Otherwise, whoever ends up owning the car is generally responsible for taking on the loan. Or, it may be easier for one spouse to refinance the car loan to remove the other spouse’s name.

Credit Card Debt

Credit card debt may be harder to divide, especially if it involves joint accounts, or one is a primary cardholder and the other is an authorized user. In general, any debt taken on during the marriage is the responsibility of both spouses for co-signed accounts. For community property states, any credit card debt incurred by another spouse — even if only their name is on it — may be the responsibility of both parties.

Medical Debt

Any medical bills that result in debt may or may not be the responsibility of both spouses, depending on state laws and why the debt was incurred in the first place. For example, if the medical debt was from expenses for children, then both spouses will most likely bear the responsibility. But if one spouse’s name is on the debt and it was from an elective procedure, then it may not be the responsibility of both spouses.

Student Loan Debt

In most cases, student loan debt that only has one spouse’s name on it is their responsibility alone, especially if it was incurred before the marriage. However, if the other spouse co-signed on it, then it’s considered a joint debt. Your state may have other rules, such as the debt being the responsibility of both spouses if it was incurred during the marriage.

What Happens If Your Ex-Spouse Doesn’t Pay Divorce Debt?

If one ex-spouse doesn’t pay the debt they’re responsible for in a divorce, several scenarios can happen. If it’s a joint debt, then your credit could be negatively affected. Not only that, but you may have to pick up the slack since lenders also deem you responsible for the debt. If the debts are separate, then their debt is theirs to deal with alone.

You can prevent incurring any more debt until the divorce is finalized by removing your name from accounts or separating credit cards, for example. Keep an eye on all accounts, if possible, to ensure that you understand how much you may owe.

How To Plan To Split Your Divorce Debts

Divorce isn’t easy, especially when splitting up your debts. Here are a few best practices to consider following to help you make a smoother transition:

• Create lists of individual and joint debts. It’s important to be open and talk about all the debts you both have, including ones only in your name. That way, you can both see what it is that you owe and be prepared for what the laws may say when dividing these up.
• Determine who’s responsible for what debt(s). If possible, take the time to talk through your debts and come up with an agreement as to who will take on which types of debt. This will also depend on the state you live in, as community property states may have already decided that you need to divide it up equally. Still, if you can come to an agreement, you can work on paying down some of the debt before the divorce is finalized. 
• Establish a debt payment plan. One way to pay down any joint debt is dividing up the joint debt into your respective individual loans (like credit cards) and closing the joint account. Or you can work out who will refinance the loan for an asset and one spouse can pay back the other. It may even come to selling the asset (like the car) if you can't find a good way to pay down the debt. If one spouse wants to keep a certain asset, then they can put in writing that they agree to take on the loan in order to keep the asset.
• Consult a divorce attorney. In some cases, one person can’t make to an agreement, or wants to be sure they are following the laws. It may be a good idea to hire a divorce attorney to get help on how to work out dividing up debts.

Divorce Debt FAQs

The following are some frequently asked questions about dividing debts in a divorce.

Should I pay off debt before divorce?

Whether you pay off debt before your divorce will depend on who will be responsible for it after your divorce is finalized. If you feel it will help your financial situation, then paying off debt may be a good idea.

Will debt collectors contact me about divorce debt?

Debt collectors may contact you about divorce debt if you continually miss payments.

When am I responsible for my ex-spouse’s debts?

You are responsible for your ex-spouse’s debts if you have joint responsibility for loans, even after the divorce is finalized.

Who is responsible for credit card debt in divorce?

Determining who is responsible for credit card debt when getting a divorce will depend on factors such as if it’s a joint account, and when the debt was incurred.

How do I manage my joint debts after a divorce?

It’s important to keep on top of your payments for all debts you’re responsible for after a divorce. If you’re struggling to make payments, it’s better to speak with your lender before missing one so you can come up with a plan.

The Bottom Line On Dividing Debts In A Divorce

Getting a divorce isn’t easy, nor is handling debt after you’re single. No matter your situation, it’s crucial you stay on top of debt payments when going through a divorce. There are free tools that can help you, such as the Rocket Money℠ app. You can use it to help monitor when your payments are due and even set up automatic payments so they won’t be late or delinquent.

Sign up and create a Rocket Money account on the mobile app today.