Upon deciding to get divorced, most people are consumed with thoughts about how the divorce will change their lives. They are probably thinking about what shared assets (cars, houses, money) they get to keep. However, what they may not consider right away is that the shared assets generally also represent shared debts. 

There are probably loans held by the divorcing couple on homes and cars. It is important to understand how debt will be divided once the couple is officially divorced, because otherwise, there can be major financial repercussions. 

It is also important to understand the laws of your state regarding property. Some states have community property laws, and some have equitable distribution laws. The laws in your state will be used to decide how your property is divided.

What Types of Debt Need to be Considered in the Event of a Divorce?

Below are some of the major types of debt that need to be considered when a couple divorces:

  • Mortgage debt: The easiest solution to dealing with mortgage debt is for the house to be sold and any proceeds split. The home is sometimes kept, particularly in cases where there are children, and given to the spouse that is the primary caregiver. There can be problems when the spouses don’t agree who should leave the home, because if it is jointly owned, neither party can require the other to leave. If one spouse does wish to keep the house, it is a good idea to have the mortgage company refinance the mortgage in that spouse’s name only. The mortgage company typically will not just remove one spouse’s name from the mortgage without refinancing;
  • Car loan debt: This is another situation where it is a good idea to refinance any joint auto loans in the name of the spouse who will be keeping the car, if possible; and
  • Credit card debt: Your spouse’s credit card debt may follow you out of the marriage. This will be true if you have both names on a credit card, but it is also possible to be responsible for a card in your spouse’s name. It will depend upon whether you live in a community property or equitable distribution state.

Other kinds of debt can be difficult to divide, as well. Other loans that were taken on during the marriage, as well as medical debt, can create issues down the road.

What are Some Rules about How Debt is Split in Community Property States?

It is important to understand the difference between community property and separate property, as they are defined in a community property state. These general definitions are:

  • Separate property: Property can be held separately if one spouse accrued it prior to marriage, and keeps it separate during the marriage. The spouse can take that property with them upon divorce, and will also be solely responsible for any associated debts. It will be safe from the other spouse’s creditors. Other property that can be considered separate, even if received during the marriage, are gifts and inheritances; and
  • Community property: In states that follow community property laws, courts presume that any assets and debts acquired during the marriage belong to both spouses. The spouses’ money and assets, and the efforts to earn them, are considered to be co-mingled.

In a community property state, just as the assets that are community property are divided equally, so are the community debts divided equally.

The community property states are: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

What are Some Rules about How Property is Split in an Equitable Distribution State?

Property law works differently in an equitable distribution state. Mortgages and auto loans which both spouses signed still belong to both equally, both as assets and debts. This is because the spouses cosigned the loans. Loans and credit cards that are held separately may be considered to be the separate property of the spouse who took the loan out in their name.

What are Some other Issues to Consider?

Some other issues to consider in a divorce context include:

  • Divorce decrees do not trump your state’s laws. You may agree that a spouse will pay off a certain debt, but if they do not, and you are jointly responsible for it, the creditor may still pursue you;
  • Bankruptcy can have a similar effect. If your spouse declares bankruptcy, a joint creditor can still pursue you for a debt your spouse agreed to pay;
  • If you have lived in both community property and equitable distribution states during the marriage, you may have quasi-community property, which may make division of assets and debts trickier; and
  • Overall, it is best to separate any jointly held accounts and loans, in order to prevent problems in the future.

Should I Contact a Lawyer Regarding Divorce and Creditor Rights?

It is possible to obtain a divorce with hiring a lawyer, however, property laws can be complicated. Working with a divorce lawyer can help ensure that your receive the share of assets you are entitled to, and do not get stuck with an inequitable share of the debt.