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What happens to debts during divorce?

On Behalf of | Oct 14, 2024 | Family Law |

Spouses preparing for divorce are often anxious about the future. In particular, they worry about their economic circumstances. Divorce forces people to divide their property and their financial resources. They may also have to address their shared financial obligations.

Credit card debts, car loans, medical debts and even student loans could be part of the marital estate. Those debts could be worth nearly as much as the property that the spouses own together. For many couples, debts become a sticking point during divorce negotiations.

Debts can help balance other major decisions

What people choose to do with their debts can affect other aspects of the property division process. Sometimes, one spouse keeps more property but also takes responsibility for more debt. Other times, spouses agree to liquidate some of their resources to eliminate their marital debts. They may have smaller nest eggs when rebuilding after the divorce, but they may benefit from that in the long term because they don’t have to spend years paying off debts accrued during the marriage.

During equitable property distribution negotiations or litigation, debts can be an important consideration. Both spouses and family law judges can address debt in creative ways to settle disagreements about the divorce.

There are limits to family court orders

Some people want their spouses to take over responsibility for marital debts and hope that they can move forward with a clean slate. However, that approach can be a dangerous one in some cases. When spouses cosign for debts, they both remain legally responsible even when there is a final property division decree allocating that debt to one spouse.

Should the spouse who needs to pay the debt default, die or file for bankruptcy, creditors can come after the other spouse for the remaining balance due. Especially in cases involving high-conflict divorces, the risk of a spouse filing for bankruptcy or defaulting out of spite is a serious concern.

Every marital estate is unique, and spouses have to think carefully about what their priorities are and what solutions put them on the most favorable path forward following a divorce. Having an appropriate plan for handling marital debts can be as important as setting goals for the retention of specific marital assets.