Who Is Responsible for Debt After Divorce in Indiana?

Divorce can be a challenging and emotional process, especially when it comes to distributing financial assets and responsibilities. In Indiana, debt acquired during the marriage is generally considered part of the marital estate and is subject to division during divorce proceedings. However, the specifics of who is responsible for what debt depends on factors such as when the debt was incurred, its purpose and the overall financial situation of each spouse.

A financial advisor can help you prepare for financial decisions and negotiations during a divorce.

Basics of Divorce in Indiana

Indiana is a no-fault divorce state, meaning that neither party needs to prove wrongdoing to file for divorce. The primary requirement is that the marriage is “irretrievably broken.”

There’s also a mandatory 60-day waiting period between filing for divorce and the court granting it, which provides time for a potential reconciliation or discussions regarding the settlement.

In terms of property and debt division, Indiana follows the principle of equitable distribution. This means that marital assets and debts are divided fairly, though not always equally. Marital property typically includes all assets and liabilities acquired during the marriage, regardless of whose name is on the account or title.

Courts may also consider non-marital property – such as assets owned before the marriage, gifts or inheritances – when determining an equitable division. Prenuptial or postnuptial agreements can help protect non-marital assets that one spouse doesn’t want to be considered for equitable distribution.

Division of Types of Debt During Divorce in Indiana

Dividing debt during a divorce can be complex, as Indiana courts strive to allocate both assets and liabilities fairly. The court takes a debt’s purpose and timing into account when determining how to divide it. Below are some common types of debt addressed during divorce proceedings in Indiana.

1. Mortgages

Mortgages are often the largest shared debt in a marriage. In Indiana, the court considers factors such as who will keep ownership of the home and each spouse’s ability to make payments when dividing this debt.

If one spouse decides to keep the house, they may need to refinance the mortgage in their name to release the other spouse from the obligation. When selling the home is a more practical solution, the proceeds are usually used to pay off the mortgage, and any remaining equity is divided between the parties.

2. Auto Loans

Courts typically assign auto loans to the spouse who will keep ownership of the vehicle. They’ll also consider the vehicle’s value relative to the loan balance and each spouse’s financial situation.

If one spouse took out a loan before the marriage, it may be classified as a separate debt and remain the responsibility of the original borrower. But for loans incurred during the marriage, the court evaluates whether the vehicle was used primarily by one spouse or shared by both.

3. Medical Debt

Medical debt can be difficult to divide, especially if it was incurred for one spouse’s healthcare needs but paid for using marital funds. Indiana courts usually treat medical debt as a marital liability, dividing it equitably between the spouses. However, the court may take into account each spouse’s earning capacity and financial resources when determining who will be responsible for the larger portion of this debt.

4. Credit Cards

Courts divide credit card debt based on whether it was incurred for joint expenses or personal use. Joint credit card accounts are typically considered marital debt and divided equitably, regardless of which spouse made the purchases.

Personal credit cards, on the other hand, might be the responsibility of the individual if the charges don’t include shared expenses. Courts often require detailed financial disclosures to assess how credit card debt was accumulated.

Division of Other Assets During Divorce in Indiana

Who Is Responsible for Debt After Divorce in Indiana?

In addition to dividing debt, Indiana courts split up other assets to create an equitable outcome. This includes tangible property, financial accounts and long-term savings.

Property

Property division involves determining whether assets are marital or separate. Marital property includes assets acquired during the marriage, while separate property typically includes items owned before the marriage or received as gifts or inheritances.

Courts consider factors such as the length of the marriage, contributions to marital property and each spouse’s financial situation when dividing property. For items like furniture and jewelry, the court may assign ownership based on use or sentimental value.

Taxes

State and federal income tax obligations are another consideration for divorcing couples. Courts may assign responsibility for tax debt based on the year it was incurred and the source of the liability. Additionally, courts take into account tax implications of asset division, such as capital gains taxes on property sales, during the settlement process.

Retirement Savings

Retirement accounts, such as 401(k)s, pensions and IRAs, are subject to division in Indiana divorces if they were accrued during the marriage. This typically involves a Qualified Domestic Relations Order (QDRO), which allows for the distribution of retirement funds to a former spouse or other dependents. Courts consider each spouse’s future financial needs and contributions to the account when determining how to divide retirement savings equitably.

How to Prepare for Divorce in Indiana

Gathering the right resources and organizing your financial and legal documents can help you streamline the divorce process – and it may even lead to a more equitable outcome. Below are several steps you should take when preparing for divorce in Indiana.

Create an inventory of your assets and debts. This should include bank accounts, retirement savings, property deeds, tax returns and any outstanding loans or credit card statements. Having a clear picture of the full scope of your financial situation will make it easier to determine what constitutes marital and separate property under Indiana law.
Consult professionals. An experienced attorney can guide you through Indiana’s divorce laws, including the 60-day waiting period and the equitable distribution process. A financial advisor can help you assess how the division of assets and debts might impact your long-term financial goals.
Make a post-divorce budget. Consider your potential changes in income and expenses, including housing, childcare and health insurance. Planning ahead will help you make informed decisions during settlement negotiations.
Prioritize children’s well-being. Discuss custody arrangements and support needs with your spouse, or prepare for mediation if necessary. Clear communication and a focus on minimizing disruption can make the transition easier for everyone involved.

Speaking to a professional can help protect your finances and they can develop strategies for you to make sure you’re still on track for your long-term financial goals.

Bottom Line

Navigating debt and asset division during a divorce in Indiana can be complex, but understanding the state’s rules can help you prepare. From mortgages and credit card debt to retirement accounts and taxes, Indiana courts aim to divide assets and liabilities fairly between both parties. Consulting with an attorney, a financial advisor or even a Certified Divorce Financial Analyst (CDFA) can provide valuable guidance as you work toward a settlement that supports your financial future.

Tips for Financial Planning

A lot of events, including divorce, can change the trajectory of your long-term financial planning. It’s important to work with someone when an event like this occurs, such as a financial advisor, who can help you adapt and get you back on track. 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 have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
You may want to consider using a retirement calculator to help you determine the amount of money you need to save at any given time for your golden years.