Helpful Strategies for Managing Divorce and Debt Responsibility

Discover how marital debt gets divvied up in divorce proceedings.
By:
Chelsea Williams
January 6, 2022
E

veryone has a different story of divorce, so it can be hard to plan for how your particular experience in court will play out. When your marriage is struggling or you've decided to separate, you could have some questions about the legal details of divorce and debt responsibility.

If you've been married for a long time, you might have a significant amount of joint debt. But even if you don't have a mortgage or joint accounts to worry about, it's helpful to understand how marital debt gets divvied up in divorce proceedings. 

Here, we'll discuss:

  • How debt is typically allocated to each party in the divorce process
  • Tips for managing the most common significant debts: auto loans and mortgages
  • What you need to know about maintaining good credit through a divorce
  • The role of child support in your overall financial picture

Disclaimer: Every divorce case and financial situation is different. There are many state-based family laws to consider. While this article offers general financial guidelines, we recommend seeking legal advice from a divorce attorney to get your questions answered.

How the Division of Debt Works

Divorce and debt responsibility: lawyer pointing to a contract

The way family courts view both marital property and marital debt depends on several factors. Most importantly, judges' decisions are rooted in the property standards of their states.

In community property states, any debt incurred or property acquired during your marriage is "community debt" — owned by the married couple as a whole — and therefore gets split 50/50. That means you'll be responsible for half of the debt, whether you personally decided to take it on or not. 

If you live in an equitable distribution state, on the other hand, your debt and assets will be divided fairly based on how long you were married, your individual financial contributions to the marriage, your need, and other case-specific factors.

Does a prenuptial agreement negate these standards? It could, so long as its parameters don't break state laws.

Debt division could also vary from the two typical approaches if it happens in mediation or via a divorce settlement, in which both former partners agree on the terms before a judge ever has to get involved.

Car Loans and Mortgages

Divorce and debt responsibility: person checking a mortgage website

Mortgages and car loans are two of the most common and sizable joint debts divorcing couples must contend with, and they're also among the most crucial because houses and cars are non-negotiable needs for many people. Therefore, these debts should be at the top of your list of items to discuss in mediation or include in a legal petition.

How the debts shake out depends on how you set them up in the first place. Whose name is on the original loan? What's the term? Are there any co-signers outside the marriage? What's the current balance?

You should know the answers to these questions for any mortgage or auto loans you share with your spouse even before speaking with an attorney.

Pro tip: Divorce paperwork doesn't override your legal agreement with a creditor. After your divorce is finalized, you and your ex-spouse should take care of ensuring that each debt contract is in the proper person's name, which may require refinancing.

Let's say you co-signed for your spouse's auto loan when you were married. Even if your divorce decree states that you're no longer responsible for the car payments, the bank that financed the loan is unaware that you're now divorced. Should your ex fail to make the payments, that creditor is still legally allowed to come after you to recover the money. 

Ideally, post-divorce, the auto loan would be refinanced in your spouse's name only. But there's no guarantee they'll take care of doing so, especially if they're not in the best financial position to reapply for credit on their own. 

Luckily, there is one method of insuring yourself against this possibility: an indemnification (or hold harmless) clause. This can sometimes be included in a divorce settlement to enforce loan debt as just one spouse's responsibility. A divorce lawyer will know whether this applies in your case, and to which debts.

Credit Cards and Other Revolving Debt

Divorce and debt responsibility: cash and credit cards

Many couples acquire joint credit card debt over the years. This kind of revolving debt — in which you borrow against an established line of credit while simultaneously paying on what you owe — can be dangerous if you don't know how to use it wisely. And because it's so easy to rack up revolving debt and keep up with only minimum payments, you could get in trouble with credit cards during an expensive divorce.

So could your ex-spouse! And, as you learned above, you'll be held responsible for any mutual debt that resulted from your marriage. You don't have to be the one to swipe the card for it to become your debt by proxy.

If at all possible, pay down as much of your credit card debt as you can before you get divorced. You and your spouse may want to take preemptive measures such as removing one another as authorized credit card users before it's time to list every debt in your divorce paperwork.

You might also want to look into credit card consolidation as a last resort. While debt consolidation often comes with high interest rates, it can be a route worth considering if you're truly drowning under your credit card bills.

How you use credit cards can have a big impact on your ability to buy a car, rent an apartment, or make any other big financial moves in the future.

Post-Divorce Conflict Over Joint Debt

Upset man using a cellphone

Because of the tense nature of financial settlements (and divorce in general), it's common to run into problems communicating with your ex-spouse about dividing debt. 

During divorce proceedings, it may be best to refrain from communicating about money unless absolutely necessary. But once the gavel has spoken and your divorce decree is finalized, you may still face unavoidable interactions with your spouse regarding debt repayment.

When you have children, your shared expenses could include school or daycare tuition, extracurricular fees, and prescription costs, among others. These are all ongoing and potentially variable — in other words, they're not going to be taken care of quickly post-divorce, no matter what your agreement states.

If you're new to co-parenting, we highly recommend creating a system for communicating with your former spouse and doing so as soon as possible after getting divorced. One reason we built the Onward App was to help co-parents reduce unnecessary stress. Given that you'll probably have other debts like the ones we discussed above, why not take one category of debt responsibility off your plate by using an easy app for tracking payments?

Protecting Your Credit Report

Person holding a Credit Report document

It's best practice to check your reports from all three credit bureaus (Experian, TransUnion, and Equifax) when a big life event like divorce occurs. Otherwise, you could unknowingly be held accountable for your former spouse's debt.

Scrutinize each report for errors, and remember: Your former partner's student loans and other personal debt incurred before the marriage should never show up on your report. It's only the debts you took on while married that can be legally considered part of your mutual obligation.

Credit scores can fluctuate daily, which means it's more important to focus on building a solid credit report than it is to try to control the score — especially in the short term. Eventually, a good debt repayment history will boost your score and make you look like a minimal risk in the eyes of lenders.

Pro tip: Check your credit report before you file for divorce, or at least before you officially sign a divorce settlement or decree. This will ensure that you're aware of all debts that are associated with your Social Security number, including any that your spouse may have incurred during legal separation (which you could still be liable for).

What About Child Support?

Person using a secure payment portal

Child support is not technically a debt, but should certainly be considered in your larger financial picture if you're the one making payments.

Because child support obligations shift over time and are largely out of your control, you should look at them as a consistent expense that could prevent you from fulfilling your other debts if you're not careful. 

As with all finance-related commitments, double- and triple-check that you know your income and outgoings to a T and aren't making debt repayment promises in court that you can't keep.

Your Divorce and Debt Responsibility Are Unique

While we've given you an overview of the debts that may need to be divided in your divorce and how your state could treat said division, we can't say exactly what will happen in your case. 

If you have yet to step foot inside a courtroom, use the above guidelines to take some precautionary steps: Know each loan and credit card you're responsible for and try to enter the divorce proceedings with as little debt as possible. 

That'll give you the best chance of walking away from your divorce with minimal and truly separate debt in an amount that you can reasonably handle.


Chelsea Williams

Chelsea is a twice-divorced mom of two boys. She is happily single parenting and doing her best to balance two simultaneous co-parenting relationships. Despite the complications, Chelsea can see the beauty in her story and believes healing is possible for the whole family.