Divorce is always complicated – emotionally and financially. While a lot of the focus in a divorce goes to dividing assets, figuring out who is responsible for various debts can be just as important. Generally, after a divorce is final, the only party responsible for a debt is the party who incurred that debt unless it was used for joint property.
For more help with figuring out divorce and debt, consider working with a financial advisor.
Who Takes Responsibility for Debt in a Divorce?
Most often, the person whose name is on the debt takes responsibility. However, there are many exceptions; the reality is often not so simple. For instance, state laws vary and may impact who owes what. A judge’s ruling can make a difference if the divorce goes into litigation. In other words, every divorce is unique, and who is responsible for debt ultimately comes down to those unique considerations. Now, we’ll take a closer look at some of the factors that may determine who is responsible for you and your former spouse’s debt.
Common Law vs. Community Property
The way your state legally divides property can play a role in who is responsible for debt in a divorce. 41 states divide property according to common law or equitable division. In this case, the person whose name is on the debt is responsible for repaying it. Nine states have community property laws, which say that both parties are equally responsible for repaying debt.
The nine states with community property laws are:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
However, state laws are not the only factor in who is responsible for different types of debt. For instance, a judge may order one party to pay a portion of the debt, even if state law doesn’t require it. These rulings may be legally binding, so the person who is ordered to pay is legally obligated to do so.
Who Is Responsible for Different Types of Debt?
Most couples have several forms of debt – for example, a mortgage, auto loans and credit card debt. These are just a few examples, but each type of debt is handled differently in a divorce. Also, who opened the account and whose name is on it may also help determine who is responsible.
Mortgage Loans
The way a mortgage and any equity in the home are handled may vary. Generally, if both names are on the mortgage, both parties will be responsible for the debt. That holds true unless the home is refinanced with only one name on the new loan. If the divorce is amicable, the two parties can agree to keep the existing mortgage, and one person will be responsible for making payments.
You likely have some home equity, which will also come up during the divorce. Since it’s not possible to physically divide a house, one way to approach this is to sell the home and divide it up that way. This can be a perilous decision if children are involved, but sometimes it is the easiest way to reach an agreement.
Auto Loans
Auto loans often still have payments remaining after a divorce and, like the mortgage, the two parties must come to an agreement on how to handle them. Similarly, if both parties are on the loan, it’s possible to refinance and sell the car and divide the value that way.
However, the situation isn’t always handled cleanly, and auto loans can be a major headache. It might be that one person isn’t making payments despite having agreed to pay. That could leave the other person to pick up the tab. If they can’t afford the extra amount, they may end up with late fees or collection costs. For this reason, it’s often best to sell the car if possible.
Credit Card Debt
Credit card debt can be especially tricky to handle during the divorce process. In the case of credit card debt, the person whose name is on the account is responsible for repayment both during and after a divorce. For instance, both spouses will be responsible for joint credit card accounts, regardless of verbal agreements for one party to repay the debt. Even if a court orders one party to repay a joint account, creditors will hold both parties responsible.
Remember that state laws also impact who is responsible for repayment. If you live in a community property state, both parties are generally responsible for any credit cards opened during the marriage. Community property laws indicate that both spouses are responsible even if the card isn’t a joint credit card. In common law states, whose name is on the account determines who is responsible.
If you have added your spouse as an authorized user to a credit card you opened in your name, contact the credit card company and have them removed, especially if the separation wasn’t amicable. This will help prevent charges you don’t want made to your card. That would only increase the debt you are responsible for paying.
The Bottom Line
Who is responsible for debt in a divorce isn’t always clear-cut. And even when the responsibility is clear, there’s no guarantee that each person will make the payments required by law. Ultimately, creditors will pay more attention to whose name is on the account than court rulings. To help minimize the pain associated with lingering debt, it’s best to pay off as much debt as possible during the divorce process, especially joint debt. You may also want to consult an attorney to protect yourself and eam i responsible for my husband’s debts if we divorce, insure your finances are handled properly during the divorce.
Tips for Getting out of Debt
- Your home is likely the most significant asset you have with your ex-spouse. However, your existing mortgage can be too much to deal with after a divorce. The result is that it’s often best to refinance your existing mortgage in one of the spouse’s names. Use SmartAsset’s refinance calculator to estimate your new payment, interest rate and repayment term.
- A financial advisor can help you work through your finances as you navigate your new life after marriage. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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