While much of divorce advice is focused on the division of assets, it is equally important to understand how debts are divided during divorce. Generally, debts will be divided equally, or at least equitably. Each individual debt may not be split in half, but the total value of marital property that each party receives, minus the debts allocated to them, will usually be relatively equal.
Whose Debt Is It?
After separation, the debts (and interest) incurred by each spouse are their own responsibility.
Generally, any debt acquired by one spouse during a marriage will be the responsibility of both spouses. In a community property state, joint ownership of the debt is almost always automatic when one partner acquires the debt during the marriage. In states that use equitable distribution, debt that was not cosigned by both spouses or debt that was incurred for the benefit of only one spouse will most likely be assigned only to the spouse who incurred it. For example, one spouse’s credit card debt from household grocery purchases would probably be joint debt in any state. However, a mountain bike purchased on one spouse’s credit card for only that spouse’s benefit may be separate debt in an equitable distribution state.
Credit Card Debt
Many divorce attorneys recommend paying off joint credit card debt as part of the separation and divorce process if at all possible. That way, each party may start with a clean slate and a credit score protected from their ex-spouse. Even if credit card debt is assigned to one ex-spouse during the divorce, creditors may nevertheless pursue both ex-spouses for the debt. For this reason, divorcing spouses who cannot pay their debt off in full at the time of the divorce should negotiate an indemnity agreement. An indemnity agreement will state that if one ex-spouse does not fulfill their obligations related to the debt, the other may bring them to court for damages.
Medical Debt and Student Loan Debt
State law also determines how medical and student loan debt are divided in a divorce. In community property states, like with other debts, any medical debt incurred during the marriage will be the responsibility of both parties. If the parties were living apart when the medical debt was incurred, the court may find that the debt is the sole responsibility of the person who needed the medical care.
Did You Know?
A court will likely take a very fact-specific approach when dividing medical and student loan debt.
With student loans, the court will look at who benefitted from the loans. If the student loans were taken out to pay for a degree that was earned long ago, and the spouse who earned the degree used it to find a job that supported the family, the debt may be split between the couple. However, if the spouse recently graduated and will be the primary beneficiary of their increased earning power, the debt will likely be assigned to them alone. All of these considerations can be very fact-specific and will depend on the unique circumstances of the parties. An experienced divorce attorney can offer an analysis applying the law of your state.
In some cases, divorcing spouses who feel overwhelmed with debt may consider bankruptcy. Bankruptcy may be a useful way to alleviate debts and start fresh before or after a divorce. A skilled attorney will be able to offer advice regarding the different kinds of bankruptcy, whether one or both spouses would benefit from filing, and at which point before, during, or after the divorce process bankruptcy will offer the greatest benefits and protection.
Bankruptcy will not reduce or eliminate child support obligations. In fact, bankruptcy may help recover past due child support because such debt will be given priority for repayment. The same is true for spousal support, but the rule is less clear for other money issues in divorce, such as a spouse’s promise to pay off shared debts. A spouse divorcing someone likely to go through bankruptcy should weigh the advantages and disadvantages of trading their rights to other shared property for higher child and spousal support payments.