What Happens to Debt Payments During Divorce?

In a divorce, the parties divide up their assets. However, a divorce must also account for debts. Here's what happens to debts during a divorce:

Debt is marital property

Even though it's not good marital property, debt is marital property. The parties must divide it as part of their divorce. In most states, the court has the job of fashioning a divorce judgment that's equitable. That includes making sure that each spouse gets their fair share of the debt given all of the circumstances.

Debts entered into during the marriage are typically marital property

Even if a debt is in only one spouse's name, debt that either party enters into during a marriage is typically marital debt. For example, if one spouse opens a credit card and racks up the charges, it's a marital debt. Even though most divorce courts split debts roughly equally, the court has the mandate to do justice. That means the court can consider who racked up the debt and the reasons for the debt. Debt to buy groceries for the family during a period of unemployment might receive a very different outcome than debt for a gambling spree.

A spouse may have to refinance or make payments

Typically, the courts have the parties refinance their debt. That might mean refinancing the house at the same time you transfer title to the spouse that's keeping it. It might mean refinancing a car loan or moving a balance to a new credit card. The goal is to get the spouse that's not keeping the debt absolved from legal liability for the debt.

What happens when one spouse can't pay?

In some cases, it's not possible for a party to refinance. In that event, the court typically orders the spouse keeping the debt to continue to make the payments. If they don't and both spouses are legally responsible for the debt, the creditor can try to recover the debt from either spouse. Certain parties may consider selling a life insurance policy early in order to avoid problems with marital debt during and after the divorce.

Not all debt is marital

In addition to marital debt, a spouse might also have non-marital debt. A common example of this is a student loan for education a spouse receives before the marriage. Typically the debt is in only one spouse's name, and that spouse simply keeps the debt after the divorce. This isn't always the case, because the parties may have mingled the debt with other assets, or it may not be fair to keep the debt separate under the circumstances.