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Debt and Divorce: What You Need to Know
Property and debt are contentious areas of divorce. The way debt division plays out in divorce – and how it interacts with your creditors – can significantly impact your financial future. If you’re considering divorce, you need to prepare for what might happen with your bills.
What Debts Are Covered?
In most cases, only debts accumulated during marriage count as marital property, so any debt you or your spouse had before marriage won’t be in a divorce proceeding. Suppose you can present a prenuptial agreement stating specific rules about which debts each has responsibility for paying after a divorce. In that case, that document may be taken into account as well.
If you’re in the process of getting a divorce, know that it’s likely your debt will be part of the settlement. Depending on where you live and what kind of separation you’re pursuing—legal or equitable distribution—you may end up with less credit than you started with. Here’s how to prepare for that reality.
Your State’s Community Property Laws
The first thing to think about is whether or not your state is considered a community property state: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin all have this type of provision. Any debt acquired during the marriage will be split evenly between both spouses even after separation. So, if one spouse took out student loans during the marriage and then divorced while they were still paying them back, each is still liable for a half after separation.
Knowing Your Debt Situation
Before you can move forward effectively, it’s essential to get a clear picture of your situation. This means separating the debt you share with your spouse from your debt. If you’re not sure how much debt each holds, find out. You can start by creating a list of all the debts in both names, including the creditor, the amount owed, and how much is paid monthly. Then create a similar list of all income sources: what do you make? What does your spouse earn? Does either of you have any other sources of income? The more information you have about your financial situation, the easier it will be to plan for moving forward.
What Happens to Debt After Divorce?
When a couple divorces, how debt will be divided can be tricky, debt is typically assigned based on who is most responsible for a specific debt or portion of the debt. However, how jurisdiction divides debt varies widely. In some states, each spouse is held equally accountable for all debts taken out during the marriage; even if one spouse were solely responsible for acquiring a particular debt, they would be similarly liable. In other jurisdictions, like California and Arizona, spouses are only held accountable for their debts. So, if you took out a student loan in your name before getting married, you would not be liable for it after divorce.
Check with your attorney to see what laws apply in your state. Suppose you live somewhere where both spouses are jointly responsible for all debts taken out during the marriage. In that case, a divorce decree does not alter joint liability on any credit accounts opened (unless otherwise stated). This means that payments must still come from both individuals’ income and expenses after separation unless the account has been refinanced or closed.
If you live somewhere where spouses are only individually liable for any debts they took out: You may be able to get joint accounts refinanced into one individual’s name so that each person is only financially responsible for their portion of the balance owed.
Be Aware of Your Debt Situation During Your Divorce
Awareness of your debt situation and the actual amounts owed can help you get out of debt quickly. The first step is to know whether your debts are joint or separate. Joint debt is when you must pay for both yourself and your partner. Good examples of this would be a mortgage loan, car loan, or credit card debt with both partners on the account. This also includes loans that only one person has, but the other is responsible for paying if their spouse passes away.
Separate debt refers to loans where only one person is responsible, like student loans or medical bills incurred before marriage. In most cases, each spouse will remain solely responsible for their separate debts after the divorce, but there are exceptions if a court order says otherwise.
It’s also important to know what your credit score looks like during this process to monitor any changes that might affect it—especially if you’re going through a period where joint credit cards are being closed and therefore eliminating positive payment history from your report.
Koleilat Law Attorneys Are Here to Help You
If you are going through a divorce or separating from your spouse, it is critical to understand how debt division and divorce work together. Protect yourself and get the information you need today by calling our local divorce attorneys here at Koleilat Law. Contact us today to learn more!