Marital Debt in Divorce

Unfortunately for a separating couple, the emotional trauma of a broken marriage is only magnified by the business of separating not only a pair of personal lives but also economic ones. Figuring out how to turn what used to be a partnership into two separate estates can be difficult. In separation, you have to decide what to do not only with your marital property but also your marital debt.

Property and Debt Division Systems

States divide marital property and debt under the laws of either community property (CP) or equitable distribution (ED). The main difference is that CP states seek to divide a marital estate equally, whereas ED states seek to divide it equitably, or fairly. As "equitable" and "fair" don't always mean the same thing, ED laws typically incorporate a list of factors allowing you to seek an unequal distribution in some cases. As a general rule, a 50/50 division will be presumed equitable in an ED state, but if the other side can show the existence of enough distributional factors, you may find yourself getting more debt and less property than she does.

Marital Vs. Separate Debt

CP and ED systems are alike in that both focus on dividing marital debt and leave separate debt alone. In general, marital debt consists of all debt acquired by either party between date of marriage and either date of separation or some other date set forth in state law. Whatever you carried into the marriage, or whatever you racked up after the marital debt estate stopped accruing, is yours. Marital debt, though, can be distributed to either one of you, depending upon the makeup of your estate. As with marital property, the name on a marital debt isn't important; the focus is on whether you acquired it during marriage.

Debt Distribution

Once you and your attorneys figure out what debt is separate and what debt is marital, you have to distribute the marital items. In court, judges try to satisfy a desired division of the total estate by distributing property and debt to each party until the target balance is reached. Typically, courts prefer an in-kind division, which means satisfying that balance by distributing property and debt in each party's name to that party without selling it or having to refinance it. If an in-kind distribution turns out lopsided, a court may order that payments be made from one of you to the other in order to even it out.

Bankruptcy

If your marital estate consists of little more than debt, understand how bankruptcy could interact with your divorce case. At the end of your plan, a Chapter 13 bankruptcy will let you discharge many debts distributed to you in a separation agreement or court order. Chapter 7 bankruptcies typically don't allow the discharge of liability to your former spouse for joint debts, but you can get out of your liability to the creditors directly. This means that while your ex could come after you for a joint credit card you were supposed to pay, the credit card company can't.