1. When Was the Debt Incurred?
Most states differentiate between debts incurred before a marriage and those incurred during the marriage. In divorce settlements in these states, debts incurred before a marriage are the responsibility of the partner who incurred them. However, they treat debts incurred during a marriage the same way as property obtained during a marriage: they are community debts and the responsibility for repayment is divided equally between the parties, no matter which one actually acquired the debt.
2. Pay off Joint Credit Cards Right Away
Most marriage advisers would tell you to keep credit cards in your own name only. Creditors hold both people named on the credit card responsible for the debt. Even if you didn't use the credit card, if your name is on it, you're responsible for the bill. If possible, you should pay off the debt together before the divorce is finalized. In some states, a judge may rule that either the party with the greater income or the party who incurred the debt is responsible, but if that's the other party and he defaults, the creditor can still hold you responsible.
3. Who Decides What's Fair?
In some states, the divorce court will make what's called an equitable distribution. In these cases, the court tries to divide both debts and assets fairly between the two parties, and looks at things like the income and occupation of the parties, the length of the marriage and the age and health of each party, among other things, and tries to divide the debt fairly instead of evenly as in community property states. In these cases, the party with the lower income will get less of the debt and the party who incurred most of the debt may be required to pay it.
4. Businesses are Different
If one party in a divorce started or bought a business before the marriage, the court usually considers that business separate property rather than community property and it will go to that party after the divorce. If the property grew or became more valuable during the marriage or if the non-owner contributed to the growth of the business, though, the court may assign part of the value of the business to the non-owner. However, if the business lost money during the marriage, the court will probably assign any business debts to the party who owns the business.
5. What Happens in Post-Divorce Bankruptcy?
There are cases where one partner files for bankruptcy after a divorce settlement. If the bankruptcy is approved, the bankrupt partner is released from the debt, even if it was assigned to him in the settlement. Just as in joint credit card debt, however, the creditor is entitled to get repayment from the non-bankrupt party if the debt was incurred jointly during the marriage. In this case, the non-bankrupt party should seek the advice of a lawyer.
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