In our last post, we began speaking about property division in divorce, focusing specifically on how assets are divided. Here we’d like to take a look at how debts are divided in a divorce. To begin with, debt is classified in the same way as assets: marital or separate. Generally speaking, both spouses are considered responsible for debt incurred during the marriage, regardless of who actually spent the money.
Typically, the spouse who receives an asset upon divorce is also responsible for any debt secured by the asset. But it is important to understand that even if a spouse agrees to take on that debt, there will still be joint responsibility on loans that have been jointly signed, and creditors can seek payment from either party.
In terms of allocating marital debt for purposes of divorce, there are a number of options. The spouse may choose to sell the joint property for cash in order to pay off the debt. They could also agree that one party will be responsible for most of the debt, and will receive a greater share of marital property or an increase in alimony in return. Another option is to divide both the property and the debt equally. In some cases, where one party has stayed at home with the children, that party may be able to keep significant assets while the other party is ordered to pay most of the debt and alimony. It depends on the case.
In any case, it is important to understand the default rules for dividing debt when going into negotiations. Working with an experienced attorney will help a great deal in this. We’ll pick this topic back up again in the future.
Source: Huffington Post, “Your Finances and Divorce,” Karen Stewart, June 19, 2013.