How is Debt Divided in a Divorce?

how is debt divided in a divorce

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When you’re going through a divorce, everything can become a point of contention. Dividing up assets like bank accounts, homes, and other shared resources can be both physically and emotionally draining.

Except, that is when it comes to dividing up debt. No one wants to carry balances that outlasted a failed marriage, so how is debt divided in a divorce?

The most accurate answer is: it depends. When it comes to divorce and debt responsibility, your relationship with your ex-partner, where you live, and other factors will play into any decisions made related to debt and divorce.

But First – How Much Do You Both Owe?

Both parties in the divorce will have access to all financial decisions and records shared during the marriage. In most cases, shared assets will be the first concern of both parties considering each wants to know how much they have left when the divorce is finalized.

But that means you also have access to all of your shared debt information. It’s crucial that you know how much collective debt the two of you held during your marriage – including everything from your mortgage to store credit card bills to accounts currently in collection.

Debt consolidation
Courts will determine who is responsible for what debt during your divorce.

Family Court, Marriage and Debt

No matter what relationship you currently have with your ex, it is the courts who will ultimately make a judgment on who retains each asset, and who is responsible for each debt. Typically, the aim is to distribute both assets and debts equally, although distribution will also depend on who gets what. If you have one major asset – a house – and smaller assets like bank accounts or minor investments, the party that is granted the residence in the divorce may also be responsible for more debt than the other party to balance things out between them.

State Law Regarding Divorce And Debt Responsibility

Debt consolidation
When payments stop, it’s time to get legal help.

The decisions made in your local court about your divorce and debt allocation will be based on the laws of the state you live in. For example, some states, like New York, are what is called “equitable distribution” states where the goal is to divide assets and debt between the two parties in a fair way – not necessarily an equal split. Instead, courts will consider the income and held property of each party when the marriage was started, the types of property, how and when they were obtained, and a host of other factors related to the marriage itself.

How Is Debt Divided In Divorce When One Party Won’t Pay?

When assets and debts are divided in a divorce judgment, each party takes on responsibility for paying off or maintaining them. But what happens if your ex stops paying off the debt that the court named them responsible for? Even if you co-signed or shared responsibility for that original debt, it is the court-ordered responsibility of your ex, and creditors can only come after them.

That doesn’t mean, unfortunately, that you won’t get mixed up in collection calls and other efforts from the original creditor. If this happens, it’s time to go back to the courts to report that your ex is not paying according to the agreed-upon terms. The court can enforce their payment or give them fines and even jail time if they continue to disregard the order.

When Bankruptcy May Be The Answer

A complication with divorce and debt responsibility can arise if neither of you can make payments on your assigned debt. Rather than both of you struggling and going further into debt, bankruptcy can sometimes be the only way to get rid of debts you can’t pay.

But declaring bankruptcy should only be your last resort, as it will stay on your credit report for between seven and ten years.

Threats To Your Credit From Debt And Divorce

Any payments for shared loans between you and your spouse will be apportioned out between you, but that doesn’t mean your name is formally removed from that loan, which means your credit score could still be at risk. If your ex stops paying one of your shared debts, you could end up seeing the impact to your credit.

Debt consolidation
Healthy savings can help you weather any storm.

If your ex is not repaying a debt, see if you have the money to cover it. If so, pay it off, and take your receipts back to family court to ask for reimbursement of this cost from your ex. You’ll save your credit, and the courts will back you up with any attempts to recoup those original losses.

How To Avoid Divorce Debt Altogether

When you’re going through a divorce, the last thing you want is to have to face your ex again and again after your marriage has dissolved. That’s why it’s in your best interest to get rid of debt as quickly as possible during your marriage so that if the end comes, it can be clean and amicable. Some easy ways to clear up shared debt include:

1) Get a credit card consolidation loan: For shared credit cards with high interest rates, consolidating your balances into one new loan can get you a better interest rate – meaning less money paid in total – and a single form of debt that one party can reasonably take on. Try a credit card consolidation loan from Payoff that allows you to quickly qualify for a consolidation loan and receive funds almost immediately, wrapping up those multiple balances in one neat bow.

2) Take out a personal loan: Whether you want to pay off some outstanding debt or need to do some repairs around the house, a personal loan from Upstart can get you a loan up to $50,000, with rates ranging from 7.73% to 29.99%.

Boost your savings: When you have healthy savings and a dedicated emergency fund, you can avoid needing to rely on high-interest credit cards for big purchases or life surprises. Find ways to put your savings to work by looking for high-interest savings accounts, CDs, or other vehicles with higher interest rates that will help your money grow.

Going through a divorce is never easy, and having to think about debts and assets related to better times together can be particularly difficult. However, with a clear head and some preparation, you can make it through your divorce and debt can become a thing of the past.

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