What happens to debt in divorce?

Divorce marks the end of one chapter and the beginning of another—not just emotionally, but financially. What happens to your debts during divorce depends on a few factors, starting with where you live. To deal with the debt you have with your soon-to-be ex, you might need to separate financial decisions from emotional ones. Get organized, stay calm, and take steps to prevent financial damage.

Here are the basic facts about what can happen to debt in divorce, as well as tips for handling it.

Why debt is a challenge in divorce

Divorces can be complicated even when debt isn't an issue. You might be trying to figure out co-parenting schedules if you have kids and come to an agreement on who gets to keep the house (or the dog). 

Throwing debt into the mix adds another wrinkle. Debt can raise some important questions that may not be easily answered, such as:

• What debt is each spouse responsible for right now?

• Which debts will each spouse have to pay once the divorce is final?

• If debts are attached to assets, such as a home or a car, who gets to keep them? 

• How do state divorce laws affect who's responsible for debt? 

• How do creditor agreements affect who’s responsible for debt?

Dividing debts isn't always a simple process, and a lot of what happens can depend on state law and your individual financial situations. If you live in a community property state, for example, you might share responsibility for a debt even if it isn't in both of your names. 

Some statues follow equitable division rules, which is when the courts consider what's fair when dividing debts. However, issues can still arise if one spouse objects to how the debt is divided or is reluctant to share their financial details with the court so that a fair division can be determined. 

How to deal with debt in divorce

When divorce is on the table and there's debt involved, you might want to take these steps: 

• Make a list of debts. If you're in the early stages of a divorce, get a handle on what you owe individually and jointly. Making a list of all your debts is a good place to start. You can note the type of debt, the balance, monthly payment, and interest rate. 

• Close joint accounts. Don’t leave joint credit accounts open when divorce is underway. Either person could continue to use the accounts and increase the debt load that you both share. Shutting down joint accounts means that neither one of you will be able to rack up new debt that you could both be held responsible for. 

• Keep up with payments. Your responsibility to your debts doesn't stop when a divorce is underway, no matter who incurred the debt. Missing payments, to individual or joint debts, could hurt your credit scores and lead to late fees. At the very least, it's a good idea to make minimum payments against loans and credit cards if you can, until the dust settles on the divorce. 

• Try to work it out. Coming to an agreement on debts with your spouse can save you time, money, and headaches when you're trying to finalize a divorce. If your spouse is open to the idea, you could sit down with your attorneys and try to reach an agreement on who will pay what. 

If you're in a situation where your finances are in limbo and you can't make debt payments, or you're worried about draining your savings, there's one more thing you can do. You could reach out to your creditors to ask if they offer any type of hardship program that would give you some temporary relief from payments. 

How different types of debt work in divorce

What happens to debt in divorce can depend on what kind of debt you have and whose name it's in. Debts that are in the name of one spouse only typically remain the responsibility of that spouse. So, if you have a $10,000 balance on a credit card that's only in your name, you most likely are going to leave the marriage with that debt in tow. 

Joint debts, on the other hand, might be divided differently. Again, it can hinge on where you live and how divorce laws work in your state. 

Here's a rundown of how different types of debt can work in divorce:

Credit card debt

Who’s responsible

Each person listed as a primary or joint cardholder 

Possible solutions 

• Each spouse can assume responsibility for credit card debts in their individual names

• Spouses can agree to a fair division of balances accrued on joint cards 

Mortgage loans

Who’s responsible

Each person listed on the loan agreement.

Possible solutions

• One spouse can buy out the other and keep the home, without changing the terms of the mortgage

• The spouse who wants to keep the home can refinance the mortgage into their name only 

• Both spouses can agree to sell the home and split the proceeds

Auto loans

Who’s responsible

Each person listed on the loan agreement.

Possible solutions

• If the loan is in one spouse's name only, they may agree to pay the debt if they also get to keep the vehicle 

• If both spouses are listed, they may agree to sell the car and split the proceeds. Or one spouse could refinance the loan in their name only, or buy out the other spouse to keep the car 

Student loans

Who’s responsible

Each borrower listed on the promissory note.

Possible solutions

• When only one spouse's name is on the loan, they're typically required to pay it themselves 

• Both spouses could be ordered to split the debt equally if one co-signed a private student loan for the other 

Medical bills

Who’s responsible

Varies by state law.

Possible solutions

• Medical debts can be treated as the responsibility of both spouses, even when care was for one person, depending on state law 

• Spouses could agree to assume responsibility for individual debts or share them, based on what the bills are for 

Ways to protect yourself from your ex-spouse's debt

Divorce could deliver an unwelcome surprise if you end up having to pay for your spouse's debts once the marriage is over. To reduce the chances of that outcome, it’s important to know what steps you can take to protect yourself. 

Again, it's important to know who owes what, especially when there are some bigger debts on the line. If you co-signed $30,000 in student loans so your spouse could finish dental school, for example, you probably don't want to be stuck with it after you've gone your separate ways. 

Closing down shared credit cards or lines of credit is a step in the right direction, since that can prevent any new debt from being added to the pile. And you can brush up on your debt know-how, too. 

For instance, you might not be aware that…

• Taking your name off a deed or title doesn't take your name off the loan.

• Your divorce decree doesn’t invalidate the contract you have with your creditors. Even if your ex is ordered to share a debt, if it’s in your name you’re still legally responsible for it.

• Asking a creditor to take your name off a joint account doesn't change your responsibility for any balance owed up to that point.

Once the marriage ends, you're not responsible for any new debts your ex-spouse creates. Unless, of course, they secretly open up joint credit cards or loans in both your names. 

Taking steps to protect your personal information, including your Social Security number, can keep that from happening. You can also freeze your credit reports, which prevents lenders from opening new credit lines in your name without your consent. 

Make a clean break from debt after divorce

Coming out of a divorce can leave you with all kinds of feelings and confusion about what to do next to get your finances back on track. If you're leaving the marriage with debt, the best thing you can do for yourself is to make a plan for dealing with it. 

What that looks like can depend on how much debt you have and what kind of income you're working with. A little budget tweaking is all it might take to get your debt payoff plan together in some cases. But if you've got a lot of debt—or a little income—you may need to weigh other options. 

For example, you could consider getting a personal loan to consolidate and pay off debts. You'd have one monthly payment to make, which could be easier to manage. If the divorce represents a significant financial hardship, you may look into resolving your debts instead, which means your creditors agree to accept less than the full amount that you owe. 

To learn more about your options, get a free debt assessment by a professional debt advisor.