The Role of Debts in Property Division

The Role of Debts in Property Division

• How courts classify marital vs. separate debt

• How debt is divided under community property and equitable distribution laws

• How different types of debt (mortgage, credit cards, loans) are handled in divorce

• How to protect yourself from your spouse’s debt after divorce

Marital Debt vs. Separate Debt: What’s the Difference?

1. Marital Debt (Shared Debt)

• Mortgages on the marital home

• Joint credit cards and personal loans

• Auto loans taken out during the marriage

• Medical bills incurred during the marriage

• Business debts, if both spouses benefited

2. Separate Debt (Individual Debt)

• Student loans taken out before marriage

• Credit card debt from before the marriage

• Business debt tied to a separate property business

• Debt acquired after legal separation

How Courts Divide Debt in Divorce

1. Community Property States

• In community property states, all marital debt is split 50/50, regardless of who incurred it.

• If your spouse racked up credit card debt, you could be responsible for half.

• Courts do not consider who benefited more—all debts taken on during marriage are joint.

2. Equitable Distribution States

• In equitable distribution states, courts divide debt based on fairness rather than a strict 50/50 split.

• Factors considered include:
• Who incurred the debt and why
• Who benefited from the debt
• Each spouse’s financial ability to pay

• If one spouse was reckless with spending, the court may assign them more debt.

Types of Debt and How They Are Handled in Divorce

1. Mortgage Debt

• If one spouse keeps the house, they usually assume full responsibility for the mortgage.

• If neither spouse can afford the home, the court may order the house to be sold and the profits (or remaining debt) split.

2. Credit Card Debt

• Joint credit card debt is typically divided equally in community property states.

• In equitable distribution states, courts assign responsibility based on who incurred the charges.

• If one spouse maxed out a credit card recklessly, they may be solely responsible for that debt.

3. Student Loan Debt

• If the loans were taken out before marriage, they remain separate debt.

• If taken out during the marriage, courts may:
• Assign the debt to the spouse who took the loan
• Consider whether the other spouse benefited financially from the degree (e.g., higher household income).

4. Auto Loans

• If both spouses co-signed on a car loan, both are still responsible for the debt after divorce.

• If one spouse keeps the car, they must refinance the loan in their name.

5. Business Debt

• If the business is marital property, both spouses may share responsibility for business debt.

• If the business was owned before marriage, it may be separate debt.

How to Protect Yourself from Your Spouse’s Debt After Divorce

1. Close Joint Accounts Immediately

• If your spouse continues using a joint credit card, you could be responsible for new charges.

• Request a freeze on joint accounts before divorce proceedings begin.

2. Refinance Loans in One Spouse’s Name

• If one spouse keeps the house or car, they should refinance the loan to remove the other spouse.

• If refinancing isn’t possible, selling the asset may be the best option.

3. Request a Debt Repayment Plan in the Divorce Agreement

• Courts can require one spouse to pay certain debts as part of the settlement.

• If they fail to pay, you can take legal action to enforce the agreement.

4. Monitor Your Credit Report

• Even after divorce, check your credit report regularly for unexpected debt or fraudulent activity.

• If your spouse fails to pay debts assigned to them, creditors can still come after you if your name is on the account.

What If Your Spouse Tries to Hide Debt or Financial Misconduct?

Signs of Financial Fraud:

• Unexplained withdrawals from joint accounts

• Large new credit card charges right before filing for divorce

• Money transferred to family or offshore accounts

How to Protect Yourself:

• Request full financial disclosures from your spouse.

• Hire a forensic accountant if you suspect hidden debt.

• Ask the court to freeze assets to prevent reckless spending.

Conclusion: Understanding Debt and Protecting Your Financial Future

Key Takeaways

• Marital debt is divided in divorce, while separate debt remains with the original owner.

• Community property states split all debt 50/50, while equitable distribution states divide debt based on fairness.

• Joint debts (mortgages, credit cards) should be refinanced or paid off to remove liability.

• Spouses should monitor their credit and close joint accounts to prevent post-divorce financial issues.