Divorce is often an emotional and financially complex process, and one of the biggest concerns is: Who is responsible for the debt? Many couples accumulate debt together during their marriage, whether through credit cards, mortgages, car loans, or personal loans. But when the marriage ends, dividing that debt can become a major point of contention.
The way debt is handled in a divorce depends on several factors, including state laws, the type of debt, whose name is on the account, and the specifics of the divorce settlement. Understanding how debt division works can help you plan ahead and avoid unexpected financial burdens.
Community Property vs. Equitable Distribution: State Laws Matter
One of the first things to consider is where you live. Each state has its own rules about how debt (and assets) are divided in a divorce.
- Community Property States (such as California, Texas, Arizona, and a few others) generally treat all debts incurred during the marriage as joint debt, regardless of who took it out. This means both spouses are equally responsible for repaying it—even if only one spouse racked up credit card charges.
- Equitable Distribution States (the majority of U.S. states including Colorado) divide debt based on what is fair, not necessarily what is equal. The court considers factors such as who incurred the debt, who benefited from it, and each spouse’s financial ability to repay.
For example, if one spouse took out a loan to fund their personal business while the other had no involvement, the court may assign that debt solely to the business-owning spouse. However, if both partners benefited from the debt—such as a mortgage or a car loan used by both—it may be divided more equally.
When Was the Debt Incurred?
Timing is critical when determining responsibility for debt. Generally:
- Debt incurred before marriage typically remains the sole responsibility of the person who took it on.
- Debt accumulated during the marriage is usually considered shared, even if only one spouse’s name is on the account.
- Debt incurred after legal separation or divorce filing is usually the responsibility of the spouse who took it on. However, some exceptions exist, such as debts related to child support or joint expenses that continue past separation.
Different Types of Debt and Who Pays
Not all debt is treated the same way in a divorce. Here’s how some common types of debt are typically handled:
1. Credit Card Debt
If both spouses’ names are on a credit card account, both remain legally responsible for the balance—even if the divorce decree assigns the debt to just one spouse. This is why it’s crucial to close joint credit cards before finalizing a divorce or ensure they are transferred into one person’s name. Otherwise, if your ex-spouse fails to make payments, creditors can still come after you.
2. Mortgage Debt
The home is often one of the biggest financial assets in a marriage, but it also comes with mortgage debt. There are a few options:
- One spouse can buy out the other and refinance the mortgage in their name.
- The house can be sold, and the proceeds used to pay off the mortgage.
- Both spouses can continue owning the home together (which is rare but can happen, especially if children are involved).
If the mortgage remains in both names, both spouses are legally responsible for payments even if only one continues living in the house. This can be risky if one spouse stops making payments.
3. Car Loans
If a vehicle loan is in both spouses’ names, it’s generally best for one person to refinance it solely in their name. If that’s not possible, the car may need to be sold to pay off the loan.
4. Student Loans
In most cases, student loan debt remains the responsibility of the person who took it out—especially if the loans were acquired before the marriage. However, if the loans were taken out during the marriage and both spouses benefited (e.g., one spouse’s degree led to a higher household income), courts may divide the debt.
5. Medical Debt
Medical bills can be tricky. Some states hold both spouses responsible for medical debt incurred during the marriage, while others consider it the responsibility of the individual who received the treatment. If medical debt is tied to a jointly held account or a co-signed loan, both spouses may remain liable.
Protecting Yourself from Debt After Divorce
Even if a divorce decree assigns debt to one spouse, creditors do not have to honor that agreement. If your name is still on a joint account, you are legally responsible for the payments—no matter what the divorce decree says. If your ex-spouse stops paying, creditors can come after you, damage your credit, or even sue you for repayment.
To protect yourself:
- Close or refinance joint accounts before finalizing the divorce.
- Check your credit report to ensure you’re not tied to lingering joint debt.
- Negotiate debt division carefully, with financial and legal professionals guiding the process.
- Consider a legal agreement that holds your ex-spouse accountable for payments, such as including indemnification clauses in the divorce settlement.
Final Thoughts
Dividing debt in a divorce is complicated, and while your divorce decree lays out who should pay, creditors often still hold both parties responsible. The best strategy is to handle joint debts before finalizing the divorce to prevent financial entanglements down the road.
If you’re navigating divorce and need financial guidance, We specialize in helping individuals plan for a stable financial future post-divorce. Let’s discuss how to protect your financial well-being as you transition to the next chapter of your life.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
