What Happens to Debt in a Divorce?

Living a life together means you may have both assets and debts, and some of them may be owned by one partner or both. As a result, a large part of a typical divorce is separating both your assets and your debts. 

As with your assets, how your debts are split up will depend on a variety of factors, including where you live, the type of debt, and who originally took it on.

Here, we’ll tell you about the different classifications of debt, how debt is divided, negotiating who’s responsible for which debt, and how closed joint accounts might impact your credit score. Here’s the breakdown.

Types of Debt in Divorce

When a debt was acquired has a lot of impact on how the courts may deal with it. 

Separate debt

Separate debt refers to any individually owned debt incurred before marriage or after a legal separation. Generally, separate debt remains the responsibility of the person who took it on. 

Debts incurred before the marriage won't become joint debts just because you get married. For example, you're not typically liable for credit card debt taken on by your spouse before you got married. The main exception would be if the two of you consolidated the debt during your marriage, then it could be considered joint or marital debt in some cases.

Marital debt

Debts taken on during your marriage may be treated differently depending on your state laws. Most states operate either under community property rules or common-law rules (a few states give you the option to opt into either set of rules).

If you live in one of the community property states—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin—both spouses are generally responsible for any debts incurred during the marriage, regardless of whose name is on the debt.

In the common-law states, debts are only owed by both parties if:

• The debt benefitted the marriage. This means it was used for joint expenses like housing, childcare, or necessary household items. 

• The debt was undertaken jointly. This may mean you were co-borrowers or that one spouse co-signed for the other. It could also be the case if both names are on the title or account tied to the debt.

Debts taken on by only one spouse that don't benefit the marriage are typically considered to be separate debts in common-law states.

Division of Debt During Divorce

You remain responsible for your own debts if they're considered separate debts. Joint or marital debts can be negotiated through mediation or divided by the court.

How marital debt is divided depends mainly on the state you live in. Typically, courts will use one of two common approaches.

Equitable distribution

In common-law states, marital debt is generally divided in the most equitable way possible. That means courts attempt to be fair, though it may result in one spouse owing more of the debt than the other.

Courts should consider each person’s earning capacity, how long you were married, and your overall contributions to the marriage. While it’s an inexact science, equitable distribution aims to be fair to all parties.

Community property

When you live in a community property state, most debts assumed during marriage are considered joint debt. Generally, the courts will divide joint debt 50/50 during a divorce. That said, you could still negotiate a different agreement with your ex-spouse or show the court that a 50/50 split would be unfair.

Negotiating Marital Debt and Ownership

Divorce requires negotiation. For example, you and your ex may agree on who will pay which debt. However, the lender still has the right to collect from either of you if both names are on the account, and each of your credit scores could be negatively impacted.

You may be uncomfortable leaving your name on a debt that’s been assigned to your ex. In that case, you could negotiate a deal in which your ex refinances the debt in their name alone to relieve you of any legal responsibility. Consult with your divorce attorney to see if it's an option.

Couples who can't afford their debts due to financial hardship may choose to negotiate with creditors for lower payments, reduced rates, or debt settlement. If you don't feel confident negotiating on your own, contact a debt relief company to work on your behalf.

Moving Forward

Once the divorce is finalized, it’s time to focus on your future. That means creating a budget that reflects your solo income and expenses. It’s also time to plan for your financial future on your own. Here's how to get started.

Order copies of your credit reports 

You can order a free copy of your credit report from each of the big three credit reporting agencies—Experian, Equifax, and TransUnion—by visiting AnnualCreditReport.com. Look over each report (they’ll differ) to ensure there are no errors. If you find a mistake, report it to the credit bureau.

Open accounts in your own name 

If you haven’t already, make sure all joint accounts are closed out and establish your own accounts. This includes:

• Checking account

• Savings account

• Retirement account

• Credit card

It's smart to have at least one credit card in your own name for purchases and to help build your credit. Be sure to also remove your ex-spouse as an authorized user on any credit cards, too.

Pay all bills on time and in full

Consistently paying bills on time is one of the easiest ways to maintain or raise your credit score. Consider setting up automatic payments and/or setting phone calendar reminders so you don't have to worry about missing due dates.

Manage debt wisely by taking on new debt only when absolutely necessary and keeping your credit utilization below 30% of your available credit limit. Pay your credit cards in full each month when possible to avoid interest charges.

Ask for help if you need it

Finally, don’t be afraid to seek professional help if you need it. Even if you’re not dealing with as much money as you’re accustomed to, a financial advisor can help you figure out the best way to establish savings, manage remaining debts, and plan for the future.