Divorce Debts: Sorting out Loans and Joint Credit

In the USA, it is not uncommon that spouses have various marital debts, including a mortgage on their marital home, loans for their vehicles and student loans, and use joint credits for household purposes. Those debts may seem insignificant when spouses live a happy life together; however, if their marriage fails, they get confused about who will hold the bills after divorce.

So, how is debt divided in a divorce? – During the divorce proceeding, the court divides all the debts and assets between two sides and decides who will be responsible and for what debt. Usually, the court divides marital property equally; however, some items may be used for balancing other ones. For instance, if one party gets more marital finances, more loans will be assigned to him or her, though.

It is worth mentioning that the laws applied to divorce and debt responsibility vary from one state to another. While some address the finances and debts each party got during their marital life separately, others believe that all assets and loans in the marriage are owned equally. Of course, the court will also consider a prenup if there is one. When it comes to splitting debt in a divorce, various types of loans are handled.

Sorting out loans and joint credit during the divorce

How is Credit Card Debt Split in Divorce?

Is a spouse responsible for a credit card debt if he or she doesn’t have any card held in his or her name? Usually, marrieds are not responsible for credit card debts held in their partners’ names. However, things are different when it comes to joint cards.

But what is a joint credit? – In fact, it is any credit issued to two or more individuals who are responsible for paying it back in equal parts. Most often, both parties are responsible for the debt acquired during their marriage, no matter whose initials are on the card. In both community property and common law states, partners who are not contractually liable for their husbands’ and wives’ debts, may be forced to pay off any portion of them if the borrowed money was used for family or household purposes.  

What Does Happen to Loans in Divorce?

When it comes to a car loan, if it is joint, both sides are responsible for it. If one ex fails to make regular payments, another party – a co-owner – is on the hook for any penalty, etc. Therefore, lawyers recommend their clients to either refinance a vehicle or make an automatic payment coming from another party’s account on a regular basis.

But how are things with other types of loans? Do spouses inherit student loan debt? – One partner isn’t liable for what another spouse has taken on to pay for college or university, even if they are a husband and wife on paper, unless this person co-signs a contract. If partners co-sign a student loan (no matter whether they take on a debt before marriage or after), they both are liable for it in equal parts. Every new loan taken on after marriage can be considered community debt and thus are handled accordingly.

What to Do With a Joint Mortgage When You Split Up?

What about divorce and mortgages? – If you and your husband or wife are on the mortgage, a great solution would be to sell your real estate, pay off the debt, and split the reward between you two. However, if you believe that you should keep your marital living quarters for the sake of your kids, then either you or your ex should buy out another party’s equity. If this happens, removing another spouse from mortgage after divorce is inevitable: the loan is then assigned to only one side while another side’s name gets removed from the contract.

Who Pays Back Taxes After a Divorce?

In general, splitting tax debt after divorce is similar to dividing any other debt. Therefore, when one asks “Is a wife responsible for a husband’s tax debt?”, there is no clear answer. An attorney working on the spouses’ divorce settlement is supposed to determine how much each side must handle, including their credit card, mortgage, and tax debt. If marital property is split evenly between ex-partners, then their tax debt, as well as back taxes, is also divided evenly so that each side is required to pay their share. Since settlements are far not always equal, one party may ask to pay more tax debt so that he or she can get an additional piece of marital property in return.

Considering those many-divorce related expenses that divorcing couples have to deal with, you may wonder: “How do you get a divorce if you have no money?” – If you are on a budget, you have nothing left to do but to start an uncontested divorce that is the cheapest way to untie the knot. In this case, you and your partner should be willing to cooperate to reach understanding without an attorney and do your paperwork yourself. If you have no idea what forms you need and how to do them, you can sign up with Cheap-Divorce-Online to get your divorce packet prepared specifically for your case at one of the lowest prices on the Internet. Fee instructions on how to file your documentation will be a pleasant bonus for you.