So, You’re Getting Divorced... Who Gets Custody of the Debt?
Going through a divorce and being in debt are both stressful enough on their own. Combine the two and you have a recipe for misunderstandings and mistaken assumptions. Knowing what debts you owe and who's responsible for them can make the financial side of a difficult time a little easier to get through.
Who's Responsible for Debt after Divorce?
The short answer is that the debt belongs to whoever's name is on the loan or credit card. But, of course, it's never quite that simple, and varies from state to state as well.
Debt from Before You Were Married Such as Student Loans
In most cases, debt from before you were married, such as student loans, stays with whichever person took out the original loan.
Do You Live in a Common Law or Community Property State?
US states are divided into those which follow "community property" (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) and those which follow "common law" (all the rest). In common law states, both of you are liable for any joint debts they've taken on, including loans in both names, mortgages in both names, and credit cards in both names, while debt in only one of your names is that person's responsibility alone.
The main exception to this is if one of you took out a loan to pay for something you'll both benefit from equally like a new central air unit. In those cases, the debt is often divided between you both. In community law states, however, both of you are generally liable for any debt taken on during the time you were married, even if it's only in one of your names.
What about a Mortgage?
Mortgage debt is usually the responsibility of both spouses. Many couples consider selling the house and dividing the proceeds or one of you buying the other's half. However you handle it, you're generally both on the hook for the mortgage.
Who Owes Medical Debt?
In the community property states, you both owe medical debt that you become responsible for during the time you're married, even after a divorce. In other states, a variety of factors may be taken into account including when the medical debt started, and the burden of paying it back on each of you.
What If Your Ex Doesn't Pay the Debt?
If your ex-spouse doesn't pay off a jointly owed debt, you're still on the hook for it. In most cases, a divorce agreement doesn't override a loan agreement or credit card contract. This concern is one reason to try and pay off as much joint debt as possible before a divorce.
What If Your Ex Files Bankruptcy?
If one of you files for bankruptcy after divorce, that doesn't change what the other of you owes, and you might be liable for the entire amount owed, not just your half. If both of you file for bankruptcy after the divorce, then you may both eliminate that debt.
Ways to Be Prepared?
If you are contemplating a divorce, there are some steps you may want to take to protect your finances beforehand, including:
- Ask lenders to remove your name from a joint loan if only one of you is planning to pay it.
- Consider refinancing some loans if possible.
- Close joint credit card accounts.
Because state laws treat divorce and debt in varying ways, and because every couple's situation is different, consider these to be general guidelines and get professional advice for your particular situation.