What Actually Happens to Your Debt After Divorce

Finances are the leading cause of stress in a relationship, and disagreements over debt—accumulating it, managing it, and getting it paid off—can lead to divorce. According to Bloomberg, the divorce rate has doubled among couples 50 or older, while among millennials, 61% of married women leave financial decisions to their husbands, which can cause lack of transparency and additional conflict later if the marriage ends.

The average U.S. consumer has a credit card balance of $6,354, according to Experian. When other debts such as car loans, personal loans, and student loans are added in, it can be a pretty staggering amount of debt to wade through in divorce mediation. On top of that, much of this could impact your credit down the road.

While a lot of people think that in a divorce each party takes their share of the debt—such as any credit cards in their own names—in reality it doesn’t necessarily work that way. In fact, even if you and your soon-to-be ex-spouse come to an amicable agreement on who will handle which debts, the judge or lenders might have different ideas.

What Happens to Student Loan Debt?

You may think that you and your spouse may be each responsible for your own student loans in divorce, but it depends on the state you live in and whether the loans were borrowed before or during the marriage.

If you took out the loans after you were married, your spouse could end up paying some of your loan balance. For an “equitable distribution” state, the court will divide the debt in a manner it decides is fair. To do that, it considers relative income, length of marriage, and other factors in the case. You could end up paying part of your spouse’s student loan balance—or they could end up paying yours. 

In a community property state, all debt, including student loans borrowed during the marriage, is divided into equal shares regardless of who borrowed it. If you took out the loans before the marriage, however, that debt remains yours.

What Happens to Mortgage Debt?

The best option, according to TIME Money, is often to sell the home and split the proceeds. It’s the cleanest way to cut ties from the mortgage without having to spend time in a court-mandated mess. Another option is to have one spouse take over the house payments, and if he or she can qualify for a refinance in his or her name only based on credit history and income. Keep in mind that any changes you make to the mortgage, including a refinance into you or your spouse’s name, need to be approved by the lender. 

What Happens to Credit Card Debt?

Credit card companies don’t have to honor divorce decrees, so it may not matter that you and your spouse agreed to split the credit card debt in a certain way. Like student loans, it matters when the card was opened and whose name it’s in. In the case of a jointly owned card where both parties are on the account, you are both responsible—and if you divorce, both of you should use any savings or assets to pay off the joint card as quickly as possible.

If one of you owns the card but the other is an authorized user, that user is not financially responsible for the balance—unless you live in a community property state, in which case you’re both still responsible.

The judge can typically assign any debts to one spouse or the other; in some cases, if a spouse takes on more of the joint debt than you do, they would also get more assets in the divorce to offset that obligation. In other cases, a couple may agree on a certain amount and the judge allows that agreement to stand.

What Happens to Home Equity Debt?

Home equity debt, being tied to the home, can be a bit more complex. If you have outstanding home equity loans or lines of credit in both of your names, selling the home and using the proceeds to pay off those joint loans is the best call. If you or your spouse is able to take over the payments and refinance the home in their name alone, they can also use the refinance to cash out and pay off the original mortgage and any equity products.

What Happens to Personal Loan Debt?

In most cases, if you took the personal loan out before you were married, that debt will continue to be yours even after the divorce. If you took out the personal loan during the marriage, however, that could change. In a community property state, all debts are split down the middle regardless of who incurred them. If your spouse took out a personal loan during the marriage, it becomes your problem too, even if your name isn’t on the loan.

In an equitable distribution state, however, the judge will consider a list of factors to decide who pays what amount. Those factors might include who cared for the children, what the state laws are, who benefited from the debt, and what the relative incomes are of both parties.

Conclusion

Divorce can be emotionally traumatic, and adding financial worries can increase that stress significantly. Being prepared can help. Depending on your situation, it may make sense to sign a prenuptial agreement. Also, being aware of your state laws, and keeping overall debt down can help keep any financial concerns to a minimum in the case of a divorce.