How The Divorce System Deals With Debts

When folks talk about the divorce process, they tend to focus on issues like child support and custody, dividing property, alimony, and who gets the dog. Many people overlook the importance of dealing with how marriage may leave overhanging debts. Fortunately, divorce law accounts for this. Here, you can explore how you're probably going to address the issue of debt during divorce.

Liabilities Are Similar to Assets

Most U.S. states fall into one of two categories when it comes to the question of assets. Some states use a community property system, and many others use a common law system.

In a community property state, almost all of the property either spouse acquires during the marriage becomes part of a pool they both share. For example, one partner might buy a sports car. That car becomes community property, even if only one spouse's name is on the title.

Common law states focus on the name on the title. If one spouse titles a car in their name, then it's likely to be theirs under divorce law in those states.

The same concept applies to liabilities. In a community property state, both spouses end up on the hook if one takes on credit card debt, for example. Common law states treat the debt as jointly owned only if both spouses' names are on the attached account.

Resolving or Assigning Debts

Ideally, the two parties will find a way to resolve any jointly held debts. Frequently, one partner will have their divorce attorney negotiate with the other's counsel. This is not dissimilar to the back-and-forth that the two parties would likely engage in while deciding who gets which assets.

One notable difference is that there is an option to declare bankruptcy if the debts meet the requirements. Especially if they're eligible for Chapter 7 as a couple, some divorcing parties may elect to pursue that process before starting a divorce. Upon completion of the process, they can then proceed with dissolving the marriage. Do note this is a fairly complex process, and a divorce attorney can't do anything for you until you complete the bankruptcy.

Similarly, you can trade some of the debts for assets or vice versa. For example, one partner might want ownership of a jointly held house. The partner who wants the house might agree to take on additional debts from the marriage in exchange for the other giving up their claim on the property. Both have to agree to the proposal, though.