How Debt Is Divided in Divorce

Rachel Blumenfeld

When going through a divorce, it isn't all about who gets the home and the bank accounts - there is debt that has to be divided between the couple as well. Sometimes dividing the debt can end up being even more confusing and frustrating than dividing the assets.

Community Property vs. Equitable Distribution

If you live in a community property state, any debt joined into during the marriage is considered marital property and can be assigned to either spouse, even if one spouse didn't know about it. Generally, in community property states, the marital property is divided equally.

In an equitable distribution state, you are only responsible to a lender for a debt if your name is on it. In these states, the court makes an effort to divide marital property and debt fairly by taking into account separate property, the income potential of each spouse, the contribution of each spouse to the marriage, and any other relevant factors.

No matter the type of state, most courts will also try to balance the debts and the assets when dividing property; that is, if someone is awarded more assets, then he or she will be awarded more debt as well.

Secured vs. Unsecured Debt

There are two kinds of debt - secured and unsecured. Secured debt is debt that is tied to collateral, such as a house or car. With this kind of debt, if you stop paying your bills, the creditor can take the house or car that secures the loan. Usually, when courts divide secured debt, they assign the debt to the same person who gets the collateral. If the spouse who is awarded the debt does not also get the collateral, he or she will usually be awarded other property in the value of the collateral to balance the debt.

Unsecured debt includes credit card debt, student loans, and medical bills, among others. With unsecured debt, the creditor doesn't have any right to the property you've bought, so if you stop paying your bills the creditor has to use other methods to get payment, such as garnishing your wages or putting a lien on your property. The division of this type of debt depends on the state in which the couple divorces.

Joint Business Debt

If the couple has a joint business venture, and the business is divided in the divorce, the debt incurred for the business will be the responsibility of the person who is awarded the business. The business will be treated as any other marital property would be, and will be included in the property division. Therefore, it will still be assigned either equally or equitably, depending on the state, factoring the business's debts into its total value before awarding it to either spouse.

After the Decree Is Decided

Even after a judge decides which spouse is responsible for which debts, the contracts with the creditors still remain valid. So if you signed a contract with a credit card company - even if your spouse was assigned the debt by the judge - if your spouse fails to pay, the credit card company can still come after you. To protect yourself in this situation, make sure any divorce decree you sign has an indemnity clause that will allow you to sue your spouse and protect your credit if the debt goes into default.

Consult an Attorney

Because dividing debt during a divorce can be complicated, and affected by many factors, it's best to contact an attorney to discuss the specifics of your situation. An attorney can advise you on how to best protect yourself and your assets.

How Debt Is Divided in Divorce