How Debt Is Divided in Divorce

Most people going through divorce worry about dividing their property. But dividing debt can be just as important—if not more.

By , Retired Judge

Divorce and Debt—Does One Have Anything to Do With the Other?

Most definitely. Dividing debt in a divorce goes hand-in-hand with dividing property. In fact, splitting debt during divorce is sometimes more significant than splitting property, particularly if the spouses don't have many assets.

Does Every State Deal With Debt the Same Way?

No. How a state handles property and debt division in a divorce depends largely on whether it's an "equitable distribution" state or a "community property" state. Equitable distribution states divide property and debt based on what a judge determines is fair under the circumstances of each case. ("Fair" doesn't always mean "equal".) Community property states, on the other hand, usually aim toward a straight 50-50 split of property and debts.

That said, you must remember that each state has its own divorce laws. So the law in one equitable distribution state might vary somewhat from the law in another. The same goes for community property states.

How Do Equitable Distribution States Divide Debt?

As a general rule, in equitable distribution states (like New Jersey) both spouses are responsible for debt that either spouse incurred during the marriage (often referred to as "marital" debt).

Spouses can also have "separate" debt. This usually refers to obligations that arose prior to the marriage, and these would continue to be the sole responsibility of the spouse who initially incurred them.

But be aware that sometimes couples use marital assets (like a joint bank account) to pay for one spouse's separate debt. This can cause problems in the divorce, because spouses who didn't incur the original debt might now seek reimbursement for their share of the marital assets used to pay that debt. Whether or not that argument succeeds would depend on the circumstances of each case, as well as the particular state's divorce laws.

Some states also characterize a debt as separate if the spouse took on the debt after the couple separated. But what counts as a separation might vary from state to state.

In certain unique circumstances, a judge might consider a debt incurred during the marriage to be a separate obligation, belonging only to one spouse. Let's say a spouse is having an affair, and in furtherance of that relationship accrues substantial credit card debt for things like gifts or expensive trips with the third person. Most states would probably allow a judge to hold the philandering spouse solely responsible for those credit card expenses.

Dividing marital debt is a balancing act, and it's up to the judge to decide who should be responsible for what. Again, in equitable division states, it all boils down to fundamental fairness. For example, if a judge finds that one spouse has a significantly greater ability to pay a particular debt, it might assign that debt exclusively to that spouse.

How Do Community Property States Handle Debt?

Like equitable distribution states, community property states differentiate between debts that both spouses are responsible for, and debts that are individually owed. The laws considers debts incurred by either or both spouses during the marriage to be a "community" debt.

Debts are normally characterized as "separate" if they arose prior to marriage (or after separation, in some states). For example, divorce laws would ordinarily classify one spouse's debt for a student loan that was taken out before the marriage as a separate obligation.

Here again, some states will also consider a debt to be separate if a spouse incurred it after the couple separated. In California, for instance, the community estate isn't liable for debts that either spouse incurs after the date of separation—which the law defines as the point when there was a "complete and final break in the marital relationship." However, if those debts were needed to pay for common necessities (for either the spouse or the couple's children), the judge might may assign the debt to either spouse in the divorce, depending on their needs and ability to pay. (Cal. Fam. Code §§ 70, 910, 2623 (2022).)

When it comes to dividing community debts, the laws in community property states aren't all the same. Some states require judges to divide the debts equally between the spouses, while others require or allow judges to allocate the debts in an equitable or fair way. Washington, for instance, requires judges to allocate a couple's debts, either community or separate, in a "just and equitable" way, after considering the relevant circumstances. (Wash. Rev. Code § 26.09.080 (2022).)

Note that when the value of a couple's community assets isn't enough to cover the amount of their community debt, the law might allow a judge to divide the debts between the spouses based on which spouse is better fixed financially to pay them.

Is There a Way to Prepare for Dividing Debt in a Divorce?

By all means. Preparing to address debt distribution in your divorce is a carbon copy of preparing to divide assets—you make lists. Identify all the debts you have as a couple. Then, to the degree you're able, break those debts down into joint obligations and separate obligations.

If there's a dispute between you and your spouse as to how to characterize a particular debt, list it in a separate column. And remember, your lists are only a starting point, because the judge might change a debt's classification as joint or separate based on the facts of your case. But at least you'll have gotten the ball rolling.

Note that most states require divorcing spouses to submit financial declarations, especially if they have any disputes about their finances. These declarations typically include an accounting of debts as well as income and other assets.

Divorce Settlement Agreements

The vast majority of divorces don't go to trial. That's because spouses are usually able to resolve their differences at some point in the divorce process, often through mediation or with the help of their lawyers (or both).

If you're able to reach a complete settlement agreement before you file for divorce—resolving all of the legal issues involved in ending your marriage, including your debts—you'll be able to file for an uncontested divorce. That way, you can save on the cost of divorce, because it's more likely that you can navigate the process on your own or by using an inexpensive online divorce service to help with the paperwork.

A settlement agreement will also mean that you have more control over how you and your spouse will handle your debts, rather than having a judge make the decisions for you. And a settlement will almost invariably save you time, anxiety, and attorneys' fees.

Note also that if you and your spouse entered into a valid prenuptial agreement (prenup) which addressed the issue of debts, as a rule courts will abide by the prenup's terms.

Who Is Responsible for Debt After Divorce?

Once your divorce is over, and you've either agreed how your debts will be split up or the judge has decided for you, that should close the discussion of who's responsible for what, right? Not to burst your bubble, but occasionally that's not the end of the story.

The reason is that creditors generally aren't bound by your divorce judgment. So, let's say the divorce judgment states that your now ex-spouse is supposed to be paying off a jointly held credit card. But at some point your ex stops making payments. There's nothing to stop the credit card holder from setting its sights on you to make up the shortfall. Of course, you can go back to court to seek relief against your ex, but in the meantime your credit rating is taking a hit.

The best way to avoid this is to liquidate assets at the time of divorce to pay off joint debts as best as you can, and then refinance any remaining debts in the name of the spouse who will be responsible for payment. This may not be possible with every debt, but to the degree you're able to do it, you'll save yourselves from possible headaches down the road.

If your name remains on any account your former spouse is supposed to be paying, keep tabs on the account to make sure your ex is making timely payments.

Of course, personal debts you incur after your divorce is over would be your responsibility.

Does Bankruptcy Enter Into the Mix?

It can. You can educate yourself about the issues around bankruptcy and divorce. But bankruptcy is a specialized area in the law. So you definitely need to consult with a bankruptcy attorney if you feel your debt situation is dire enough to warrant taking that road.

There are several things you should ask a lawyer about. For instance, you'll want to know whether only one spouse should file for bankruptcy, or whether it would be more beneficial for both spouses to file, either individually or jointly.

You'll also want information on which type of bankruptcy to pursue—Chapter 7 or Chapter 13. Each has its own benefits and drawbacks. And you'll need guidance on whether to file for bankruptcy after divorce or before.

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