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What Happens to Debt During Divorce?

If you and your spouse have debt, the court will assign responsibility for that debt in an equitable manner. Almost everyone has some kind of debt, whether it’s student debt, credit card debt, medical debt, a mortgage, or something else.

Debt is so ubiquitous in the U.S. that having some form of it is very normal, to a point where most people don’t even think about their debt as long as they can make their payments.

No matter how often you think about your debt, you’ll be thinking about it a lot more if you’re facing a divorce. Any debt that was created during your divorce must be dealt with, and it’s not as simple as assigning debt to whoever created it.

Equitable Distribution & Divorce

We referenced earlier that debt is distributed equitably between spouses during a divorce. This is because the division of assets and debts during a divorce in North Carolina is guided by the doctrine of equitable distribution.

There can be some confusion about what “equitable” means. It’s not a synonym for “equal” as some readily assume, but it rather refers to what is fair – and sometimes equal isn’t fair.

An example of this is when one spouse’s income far exceeds the other’s. Equitable distribution of debt might mean assigning more debt to the spouse with the greater income because they can afford it. If debt were divided equally, it could place an unfair financial burden on the spouse earning less income.

What If the Debt Isn’t Mine?

If debt doesn’t belong to you, you probably won’t be responsible for it. That said, what the law determines to be your debt can differ from what you believe it to be.

Whether it’s assets or debts, the law distinguishes between what belongs to someone “separately” and what belongs to the marriage as marital property. Usually, separate property is anything that someone brings into the marriage, such as student debt, credit card debt, a savings account, and other property debt. Marital property is any asset or debt gained from the date of marriage to the finalization of the divorce. This is why careful spending on both spouses’ behalves is so important while the divorce is ongoing.

So, if your spouse had unpaid student loans before you got married, there’s a chance you won’t be liable for them because your spouse brought them into the marriage as separate property. If your spouse racked up a lot of credit card debt during your marriage, however, you could be partially or mostly responsible for paying it off after the divorce – even if the account wasn’t opened in your name.

Equitable Distribution, Your Home & Your Mortgage

How debt is treated under equitable distribution also applies to mortgage debt, but there are some nuances that can complicate the potential outcomes.

The first outcome, though, isn’t complicated at all. If the mortgage on your home is paid off and your name is on the title, the home will very likely stay with you as your separate property. Even if you’re paying a mortgage, are the sole earner, and pay all of your household’s bills, the house will probably still stick with you because your spouse wouldn’t have much of a claim to it.

Things can get a little more complicated when a mortgage is paid with commingled assets. If both you and your spouse are earning income, and your comingled assets contribute toward your mortgage, then your spouse can claim an ownership interest in the house even if their name isn’t on the title.

If either spouse in an equitable distribution divorce wishes to keep the house, the one who wins it typically has to buy out the other’s ownership interest. This buyout can be for an amount less than half of the equity in the home, which allows the spouse with whom the house remains to retain more wealth.

Concerned About Debt During Divorce? We Can Help.

If problems with debt during your marriage have you concerned about your financial future after your divorce, you can reach out to Krusch Divorce Resolution for legal representation. Debt can be complicated to resolve in any divorce, especially if it includes a mortgage tied to your home.

Rest assured that if you need an advocate to help guide you through your divorce, you can count on a Krusch Divorce Resolution attorney to provide the legal support you require.

For more information about how we can help, contact us online now.

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