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How is debt divided in divorce?

The ending of a marriage is not usually a simple process. The two people involved have to make choices on how to handle several aspects of life that they previously managed together. This can include determining child care, property division and even debt division.

If you carry any amount of debt along with someone else, you likely understand that the amount owed is the responsibility of both of you. So what happens if you decide to divorce your spouse? Experts say that the distribution of debt during a divorce depends on several factors.

Arizona is a community property state

Here in Arizona, the state considers all marital property as community property. This means that most property that you acquire during the course of your marriage is owned by both spouses. Any debt that you or your spouse rack up together over the years is also joint property. If someone's spouse accumulates debt without the knowledge of the other spouse, both parties are still responsible for repaying it.

Handling debt during separation

If your spouse generates debt while you are legally separated, it generally belongs to him or her. The exception is if that debt provided care for something for which the two of you still share responsibility, such as children or a family home. The court will divide your debt and assets as part of the divorce process.

Should we continue to hold debt together?

There may be some circumstances where it makes sense for ex-spouses to continue to hold debt together. Experts warn against doing this, since one ex-spouse could decide not to continue paying off the amount. If this occurs, a creditor could come after both parties in order to recoup the amount owed. The ex-spouse who failed to repay the debt could be held in contempt of court, but there may still be a negative effect for the other person.

Make sure to divide fairly during the divorce

If you and your spouse decide to divorce, the two of you can create a separation agreement right away. It can contain choices you make together about who will own what, including how you will handle your debt. If your divorce is acrimonious, this may not work, but it is worth exploring if the two of you are able to do so.

Different types of debt

There are several different kinds of debt, and they each have special considerations that you will need to address:

  • Credit card debt – If you and your spouse have debt on a credit card account with both of your names on it, you can approach your lender to see if the debt can be split into different accounts. If each of you has good enough credit to qualify for a line without the other person, the lender may be more likely to allow this.
  • Mortgage loans – Though you can decide to sell the house and split the profit, if you both have your name on the mortgage, one of you may be able to keep the house. You could have the mortgage loan refinanced to have just one person's name on it, and the person who keeps the house could give a cash payment to the other ex-spouse. Otherwise, you can take out a home-equity loan so the spouse who keeps the home can use it to pay the other spouse.
  • Car loans – The easiest solution is probably to refinance a car loan to have just the name of the spouse who will keep the car on it. This is an instance where some exes will just take responsibility for making the payments for the car he or she drives, despite having the ex-spouse's name on the loan.
  • Student loans – Most often, the spouse who took out the loan will continue the responsibility of paying it. Sometimes, one spouse may agree to pay off the student loans of the other spouse as part of the divorce agreement.

The most important thing is to ensure that each portion of debt is accounted for in your divorce settlement. If you're unsure of how to handle a certain aspect, an experienced attorney can be a valuable guide.

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