Marital debt is debt that is acquired during a marriage by the two spouses. Marital debt may include, but is not limited to:
- Joint accounts;
- Credit cards;
- Co-signed loans; and
- Joint tax returns.
These types of joint debts are the responsibilities of both of the spouses. In some states, known as community property states, both of the spouses’ names do not have to be on the debt for it to be considered marital debt.
Instead, in these states, debt acquired during the marriage may be considered marital debt. However, it is important to note that it is not always that simple because the laws governing the issue vary by state.
Because of this, an individual needs to consult with an attorney to determine the laws of their jurisdiction.
What Is Community Property and How Does it Affect Marital Debt?
Community property includes all property, assets, and debts acquired during a marriage, regardless of how it is labeled and whose name it is in. Community property states include:
- Arizona;
- California;
- Idaho;
- Louisiana;
- Nevada;
- New Mexico;
- Texas;
- Washington; and
- Wisconsin.
All other states in the United States are equitable division states. In a community property state, everything that is acquired during a marriage will be divided between or will be the responsibility of the spouses following a divorce, including all of their marital debts.
For example, if one spouse co-signs a loan for the other spouse, the co-signing spouse will still be responsible to the creditor as a secondary payee after the divorce. If the spouse responsible for paying the loan stops paying on that loan, the creditor can go after the co-signing spouse.
This loan may affect both parties’ credit scores if it is not paid. For the most part, anything that falls into the category of community property is considered shared debt for which both parties are equally responsible.
It is important to note that even bank accounts that are held separately by the spouses may still be classified as community property. For example, if the finds in the account were commingled during the marriage, it would be considered community property.
Commingled means that the funds were beneficial to the marriage and may come from shared assets, investments, or any other financial income. It is important to note that debt may also be assigned when a divorce is finalized.
This means that a court can determine whether the debt has to be paid by both parties based on the circumstances surrounding the debt. It is always important for an individual to consult with a lawyer to find out what laws may apply to their situation.
What Is Equitable Division?
Equitable division is the process a court uses to divide assets, property, and debt fairly during a divorce. Unlike a community property state, an equitable division state will split the debt fairly or assign the debt to the party who created it.
In an equitable division state, the marital property may still create shared debt in the divorce. There is a distinction, however, of separate property that belonged to one spouse, which created separate debt.
How Does Equitable Division Affect Student Loans Debt?
Student loan debts may be a tricky issue during a divorce. In equitable division states, if spouses enter into a marriage with separate student loans, they are more likely to leave the marriage with their separate student loans.
In some cases, however, although student loans may have been created by one spouse, depending on how long they were married, the court may consider the circumstances and order the other spouse to pay a portion of the loan. If, for example, a couple was married for 30 years and one of the spouses was a homemaker and stay-at-home parent for the first 20 years and later went back to school, they may not have been able to take out the student loans without their spouse co-signing.
During the divorce proceedings, the court may assign part of the student loan debt that the former homemaker spouse created to the other spouse who was well established in their career. This is because courts will often view the spouse taking on student loans, especially if they are done to advance their career or find a paying job, as something that they are doing for the benefit of the marriage.
How Can I Avoid Debt from My Divorce?
It is important for an individual not to take steps to try and actively avoid their spouse’s debt. If they accumulate debt during their marriage, it is likely unavoidable unless the spouses agree.
Taking certain steps can make it more difficult for an individual in the long run, including:
- Hiding assets;
- Removing the other spouse from accounts; or
- Cutting off the other spouse from marital funds.
It is important, when possible, that the spouses maintain a cordial and positive relationship, even while they are going through a divorce. If both spouses are willing, they should participate in family mediation to make it as fair as possible.
A qualified divorce lawyer will be able to help the spouses figure out how to divide the marital debt in a way that satisfies both parties.
What Are Some Examples of Specific Types of Debt?
There are specific types of debt that are often incurred during a marriage, including:
- Auto loan debt;
- Credit card debt; and
- Mortgage debt.
Auto loans can be difficult to handle during divorces. Typically, one individual will keep the vehicle and make the payments.
One issue arises when one of the spouses gets to keep a car, but the other spouse has to make the payments. It is not unusual for the paying party to decide they no longer want to pay, and the vehicle is repossessed from the non-paying spouse.
Some options individuals may consider related to auto loans includes:
- Refinancing the loan if the bank agrees;
- Ask the court to order that the monthly payments be automatically drawn out of a checking or savings account;
- Sell the car; or
- Pay off the debt before the divorce is begun or is finalized.
With credit card debt, the individual whose name the debt is in will be responsible for paying it. In a community property state, if the credit card was opened during the marriage, each party must pay 50%, no matter whose name is on the card.
The same applies to joint credit card debt in community property states. In equitable division states, the debt will be divided as fairly as possible.
For mortgage debt, the court will consider each party’s financial situation, who can afford the payments, and whose name the property is in. In community property states, it will likely be considered joint property even if it is only in one spouse’s name.
Do I Need an Attorney for Marital Debt?
If you are involved in a divorce with marital debt, consulting with a divorce lawyer is in your best interest. It may also be helpful to consult with an attorney before filing for divorce so that your lawyer can review your debts and help you prepare for what will likely occur.
