How To Handle Joint Debts in a Divorce

During marriage, debts are often shared. Debts incurred before or after marriage may remain the responsibility of the person who created them. How joint debts are handled during the divorce largely depends on whether you live in a community property state or a common law state. However, if your former spouse engaged in financial misconduct or egregious spending, they may be assigned a more significant proportion of shared debts.

Speak with an experienced divorce lawyer in your area to learn more about managing joint debts in divorce.

Understanding Joint Debts in Divorce

Divorce involves unwinding many aspects of your life as you and your former spouse go your separate ways. One area that is of critical importance involves your personal finances. You must not only understand who will get what assets, but you must also understand how the court handles joint debts in any divorce agreement. You cannot assume that debt in your spouse’s name follows them alone.

The type of debt and your state’s family law concerning property division will largely determine which party shoulders the responsibility for shared debts after the divorce proceedings conclude.

How State Laws Affect Debt Division

Assigning debts usually occurs during the divorce proceedings. Working with a family law attorney can allow the parties to reach agreements regarding debts in the divorce decree.

Understanding the legal framework in your state allows you to prepare for the financial situation you will face post-divorce. Under state law, courts categorize debts into two categories: 

1. Marital debt: Any financial obligation incurred during the marriage.
2. Separate debt: Debt incurred before marriage or after separation. These debts are usually the responsibility of the spouse who created the debt obligation.

Community Property States

In community property states, spouses split the responsibility for the debts incurred during the marriage 50/50. Nine states are considered community property states, which divide marital property equally when a couple divorces. These states are:

• Arizona
• California
• Louisiana
• Idaho
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Marital property can include income, property, and debts. This property does not include assets you owned before your marriage. Community property that cannot be split must be divided equally as possible. It may take court intervention to reach a decision.

Common Law States

Most states follow an equitable distribution of marital property using common law principles. Debts and property acquired during the marriage are considered marital property. You can deviate from this common law principle if you have a prenuptial agreement (or other enforceable agreement) addressing the property or debts.

Some states consider fault when dividing debt incurred together. Debt incurred together is divided according to fairness and ability to pay. A spouse with a higher income or property may be assigned more debt.

Protecting Your Credit Score

These days, it is difficult to live without any debts. You may have a home mortgage, student loan, medical, personal, or credit card debt. However, it is critical to protect your credit score, especially if you plan on borrowing in the future. This requires you to ensure debts in your name are paid on time. If your ex-spouse fails to pay a debt as required under an agreement, you must pay the debt to protect your credit.

You can request repayment from the court later if it was your ex-spouse’s responsibility to pay. However, you are still responsible if you fail to pay and your name is on the loan or credit card. The lender is unlikely to know anything about your divorce decree. 

It’s best to cancel shared credit cards and pursue balance transfers for any debt you are responsible for. There is no joint credit report. Each person’s credit history belongs to the individual.

Credit Card Debt

You are not responsible for your spouse’s credit card debt. But you are responsible for all credit card debt in your name. In community property states, you are responsible for 50% of the debt if you open a joint credit card account during your marriage.

Joint credit card debt held by both parties during the marriage is the responsibility of both parties. The credit card companies are unaware of any agreements regarding the division of marital assets and debts. You are responsible for ensuring the credit cards are paid in full and on time. However, a judge may find that one spouse can pay more than the other in a common law state.

Mortgage Debt

Mortgage debt incurred after the marriage will affect your credit if it is a joint mortgage loan. The same applies to a joint loan for home improvements and any loan for refinancing mortgage debt. If the mortgage debt is only in one person’s name, the court will determine how it should be handled.

Car Loan

If you are a cosigner on an auto loan with your spouse or have a joint account for the car loan, both parties are responsible for making the payments.

Ways to ensure the car loan is paid after divorce include:

• Selling the car
• Refinancing the loan
• Have automatic payments taken from a bank account as part of a divorce decree
• Paying off the balance

If you or your spouse fail to pay as a borrower, you can damage your credit scores with the major credit bureaus such as Experian, Equifax, and TransUnion.

Negotiating Debt Settlements

Even though you are involved in a divorce case, it is best to keep lines of communication open with your ex-spouse and their attorney to agree on a debt settlement. If you cannot agree, consider scheduling a mediation session to negotiate the division of debts amicably (if the court does not require it).

Legal Recourse for Unpaid Joint Debts

In states that follow common law, debts during the marriage are usually separate (individual accounts) unless your spouse co-signed for them or was a joint borrower on the account. In community property states, most debts taken on during marriage are considered joint debts.If the court orders your spouse to pay a joint debt but refuses, get legal help from an experienced local divorce attorney in your area. Your lawyer can help you through this process and provide the legal advice you need.