Figuring out who’s responsible for debt after divorce isn’t a straightforward answer. It depends on many factors, including when the debt was incurred, what the debt was used for and which state is presiding over the divorce.
Going through a divorce can be challenging, especially when there are gray areas to consider. Understanding the process around who gets what in a divorce and who may be liable for marital debt can help make this transition a little less turbulent so both parties can move forward.
The first question to ask when evaluating who’s responsible for debt after divorce surrounds when the debt account was opened. If the debt was initiated before the marriage, the spouse who borrowed the money typically will be the only one on the hook for repayment.
However, if you and your spouse accumulate shared debt during the marriage, you’re both responsible for it. This might come up if you and your spouse borrowed a mortgage to finance the house both of you lived in during the marriage or took out parent loans to help fund your child’s education.
Community property states follow a 50/50 split of marital assets and debt liability. Under community property law, if your spouse racks up a credit card balance on an account in their name during the marriage, it’s considered community debt, and you may be equally responsible for it.
The following are community property states:
- New Mexico
Alaska is an opt-in state, which means couples can choose to follow community property laws.
The other states practice equitable distribution or common law when determining which party owes a debt. Although “equitable” may sound like a 50/50 split in responsibility for the marital debt, a court decides on the fairest way to allocate common assets and debt that was incurred during the marriage.
Factors such as each spouse’s earnings, prenuptial agreements, and the age and health of each party contribute to how debt from marriage is divided between spouses.
A divorce agreement is ultimately an agreement between you, your spouse and the court. Other parties, including lenders, the IRS and credit card companies, involved in marital debt that’s in question aren’t involved in divorce negotiations — and, therefore, aren’t held to them.
When you and your spouse opened a credit card account or took out a loan for the family car, you both agreed to terms set by the lender. This applies to any debt that you cosigned or guaranteed on behalf of your spouse. Despite what’s stated in a divorce agreement, a creditor may seek payment from any person named on the lending agreement if payments aren’t made.
Debt incurred for one person’s benefit could be allocated to that person, said attorney John Shea, a partner and chair at Massachusetts-based Mirick O’Connell Attorneys at Law.
Some examples he’s personally experienced with his clients include:
- Debt from plastic surgery procedures
- Debt that was borrowed for a spouse’s family member, such as a parent
Student loans borrowed before the marriage are not passed onto the other spouse. However, student loans incurred during the marriage — depending on the scenario — may be split among spouses.
Couples in community property states are held equally responsible for credit card debt amassed during the marriage. You’re also responsible for paying joint card debt in a common law state.
If a mortgage was taken out during the marriage, it’s typically considered marital debt, so both parties are liable for it. Home loan debt that was acquired not too long before the marriage can be a bit more complicated, Shea said.
“If the debt was incurred 10 years ago in a nine-year marriage, it may be difficult to allocate it to one party,” he said. “For example, if the debt were related to the purchase of a home, and the other party has improved the home during the marriage, then allocating the debt related to purchasing the home may be difficult to untangle.”
In common law states, medical debt is assessed by the court. In community property states, medical debt is shared equally among parties.
An auto loan that has both spouse’s names on the lending agreement holds both parties liable for the debt. If you’re in a community property state, you may be liable for a car loan that’s only under your spouse’s name if the car was financed during the marriage.
Moving past marital debt can be easier with help from a mediator, shedding as much shared debt as possible before the divorce and staying on top of the debt’s status after divorce.
Debt before a divorce
1. Consider a mediator
A mediator helps guide a cooperative discussion between spouses with the goal of avoiding a court settlement. During mediation, both parties negotiate a contract that sets details of the split, including assets, debt, child custody and alimony.
Both parties sign a “no-court” agreement that requires attorneys to withdraw from representing the parties if a settlement can’t be reached and escalates to court. At this point, each spouse will need to hire a new attorney to represent asset and debt-related demands in litigation.
2. Pay off the debt before finalizing the divorce
Another option to limit the amount of marital debt that’s negotiated during divorce is eliminating the debt beforehand. If you and your spouse agree that divorce is imminent and can amicably agree on who pays which debt, close out as much shared debt as possible. You can also choose to liquidate assets to pay for the debt.
Taking this preemptive step could relieve some of the emotional and financial hardship of having those debts included in the settlement.
3. Refinance the debt in one spouse’s name
Whether your spouse agrees to pay a shared debt or it’s a court decree, remember that creditors will — and can legally— hold you liable for debt if your spouse misses a payment.
“Make sure there is nothing in common to the best of your ability,” said Leslie H. Tayne, a debt resolution attorney at Tayne Law Group in New York. “If you are not going to be responsible for debt that’s in your name, then you should require that the debt be transferred somehow out of your name.”
For example, if you cosigned on your spouse’s private student loan, ask that your spouse refinance the student debt into their name exclusively. This ensures that the lender can’t come after you for payment if your spouse loses their job and can’t pay or if they unexpectedly can’t work because of an injury.
Debt after a divorce
1. Confirm your former spouse is making their payments
If you’re concerned about your former spouse’s ability or willingness to make the payments for which they’re liable, you can request that the divorce agreement requires them to show proof of payments. In this situation, the spouse that’s obligated to pay must provide receipts on a regular basis to confirm that the debt is in good standing.
2. Consider legal action if debt payments aren’t made
Should your former spouse fail to make payments on the debt, you still have recourse.
If the loan defaults, the former spouse could have to return to court on a Complaint for Contempt, Shea said. If the other spouse is successful, they could be awarded attorney fees.
3. Monitor your credit
It’s important to remain on top of your credit after a divorce, especially if you still have active, shared debt. If your spouse defaults on a debt that includes your name, your credit will also take a hit. You can request a free credit report every 12 months from each credit bureau through AnnualCreditReport.com to track any changes to your account status.
How does bankruptcy affect a divorce? You could next in line as the responsible party to repay the debt if your spouse files for bankruptcy on a shared debt. But bankruptcy doesn’t just affect your finances and credit. It can drag divorce proceedings, too. “If you file for divorce and bankruptcy at the same time, the divorce process could take substantially longer since your assets would be on hold from the bankruptcy,” Tayne said.
How would a prenuptial or postnuptial agreement affect debt after a divorce? Prenuptial and postnuptial agreements outline each spouse’s assets and existing debt, as well as the agreed arrangement between the couple on how debt is divided in the event of divorce. “Since the court doesn’t always split assets and debts evenly during a divorce, an agreement between both parties can more favorably split debt for both parties and help the process during a divorce,” Tayne said.
How can you protect your credit after a divorce? Make sure all shared accounts created during the marriage are put under the responsible party’s name. This can be done by refinancing the debt to exclude the non-liable spouse. Continue monitoring your credit report to easily flag payment issues regarding marital debt.
When do you stop incurring marital debt during a separation or divorce? It depends on the state in which you live. For example, California uses your date of separation to determine when responsibility ends. Check with a lawyer in your state if you’re looking for more specifics.
Kat Tretina contributed to this report.