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What is a CDFA®?
A CDFA® is a financial planner who specializes in divorce-related financial matters. Learn more from EP Wealth CDFA® Linda Ginder. Connect online to...
Dividing debt in a divorce can be complex. EP Wealth’s Linda Ginder, CFP®, EA, CDFA®, shares insights on handling mortgages, loans, and credit accounts to help you aim for a fair financial outcome.
How Do You Split Up Debt In A Divorce?
Whether it’s a mortgage, student loans, or credit cards, debt is a reality for some American couples. In a divorce, they may be wondering who is left to pay those bills. The answer? That depends.
As a Certified Divorce Financial Analyst® at EP Wealth, I help clients untangle their debts and move forward toward an equitable financial agreement. Below, I share some insights into questions and concerns commonly raised by my clients over the division of debt during divorce.
Is Debt Split 50/50 in Divorce?
As a CDFA®, my goal is to document and assess a couple’s finances during divorce proceedings. Debt is an important part of the couple’s overall net worth.
Let’s say one spouse took out student loans years before meeting their partner. That debt is likely to stay with them—unless the couple agrees to different terms in their divorce agreement.
I also look at whose name is on the loan, credit card, or other debt. In some cases, debts that are only in one spouse’s name may follow them after divorce.
It also depends on the state where you divorce. In community property states, both spouses are generally responsible for any debts acquired during the marriage.
Home Mortgage
As a divorce financial planner, I provide insight and education on the implications of decisions surrounding certain debts.
Let’s take your home mortgage. For many couples, this can be one of the most significant debts they carry.
We can discuss if refinancing makes sense to release one spouse from future liability for that debt, or if it’s better to buy your spouse out and retain the home.
Selling the marital home and splitting the profits is another option that may be more practical for some couples.
HANDLING JOINT CREDIT ACCOUNTS AND CO-SIGNED LOANS
Credit cards, auto loans, and personal loans can become complicated in a divorce, especially if both names are on the account. Even if the divorce agreement assigns a debt to one spouse, lenders still consider both parties responsible for any joint accounts. That means missed payments could affect both credit scores.
One of the first steps I recommend is reviewing all joint credit accounts. Freezing them can prevent new charges from being added. For accounts with balances, paying them off or refinancing them in one spouse’s name can help separate financial obligations. If that’s not possible, it’s important to have clear, written agreements on who will continue making payments.
Co-signed loans are another issue. If one spouse co-signed a car loan or a personal loan for the other, they remain legally responsible if payments stop. In those cases, selling the asset or refinancing the loan may be necessary to remove financial ties.
SEPARATING ASSETS AND DEBT
While many people focus on dividing assets in a divorce, splitting debt is just as important. A well-structured financial settlement considers both.
One approach is to offset debts with assets. For example, one spouse may keep a larger portion of the retirement savings in exchange for taking on more debt. This can help balance out financial responsibilities while giving each person a fair starting point post-divorce.
Another factor to consider is liquidity. Assets like a home or investments may have value, but they aren’t easily converted to cash. If a spouse takes on significant debt without access to liquid assets, they may struggle financially. Looking at the full financial picture—debts, income, and available resources—can help create a more sustainable division.
WHAT IF AN EX-SPOUSE REFUSES TO PAY AN ASSIGNED DEBT?
Even with a divorce agreement in place, there’s always a risk that an ex-spouse won’t pay a debt assigned to them. Unfortunately, creditors don’t take divorce decrees into account. If your name is still attached to the debt, late payments or defaults could affect your credit score and lead to collection actions.
If you find yourself in this situation, the first step is to communicate with your ex-spouse to see if there’s a way to resolve the issue. If that doesn’t work, you may need to take legal action. Courts can enforce divorce agreements, and in some cases, wage garnishment or other penalties may be applied.
It’s also worth checking whether any refinancing options are available to remove your name from the debt entirely. While this isn’t always possible, it can help you by minimizing financial ties that could impact your future.
Protecting Your Credit Is a Priority
It’s important to consider how different options for dividing debts can potentially impact both spouses’ credit. One of the goals of a successful divorce agreement is to create two self-sufficient households once the divorce is final—and healthy credit is a part of that.
If you are worried about possibly being saddled with an unreasonable amount of debt, or being assigned debt you don’t believe is yours, I encourage you to share your concerns with your divorce mediator, collaborator, or attorney. They can advocate for you and work towards protecting your interests throughout every stage of your divorce proceedings.
Working Towards A Fair Financial Judgment
Here are four ways that could help make the financial aspects of divorce more equitable before you step into a courtroom.
With the assistance of a CDFA®, you can work toward a fair division of debts that helps both spouses move forward along their path toward financial security.
Call or connect online to find an EP Wealth advisor to support your financial planning needs and goals at every age and stage of life.
DISCLOSURES
- Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. Content does not involve the rendering of personalized investment advice, nor is it intended to supplement professional individualized advice.
- As the author of this piece, EP Wealth Advisors, LLC (“EPWA”) has tailored the messaging of this article to align with the categories, services, qualifications, capabilities and services that it offers and can service. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions with the appropriate professionals. EPWA makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of opinion by the author are subject to change without notice.
- EPWA is not in the business of providing legal services or advice. Always consult your tax advisor and/or attorney regarding your specific situation.
- The Certified Divorce Financial Analyst® (“CDFA®”) that are employed by EP Wealth Advisors, LLC are not practicing attorney, accountant, tax professional, or legal expert. All assessments and subsequent recommendations limited and are performed exclusively under the guise of financial planning. An attorney must be retained in order to professional and accurately assess legal options and/or to provide counsel. We also recommend consulting a CPA, accountant, or tax professional.
- Hiring or working with a CDFA® does not guarantee or ensure that a client or prospective client will experience encouraging or favorable results.
- Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment, tax, or legal advice nor is it intended to supplement professional individualized advice by the appropriate professional(s).
- The decision to work with a CDFA® professional will differ amongst clients and depend on individual circumstances of each respective client. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC and/or a CDFA® will satisfy your divorce service needs. Services offered by other professionals may align more to your specific needs.
- EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability. Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions with the appropriate professionals. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice. Please consult a professional Financial Advisor before applying any of the approaches or strategies made referenced directly or indirectly in this publication.
- The information presented here is not intended to be regarded as a complete list of things to consider, including but not limited to, categories, services, or qualifications that a client or prospective client should contemplate when assessing or comparing Financial Advisors and/or Firms. As the author of this piece, EP Wealth Advisors, LLC (“EPWA”) has tailored the messaging of this article to align with the categories, services, qualifications, and capabilities that it offers. There is no guarantee or warrantee that the services offered by EPWA will satisfy your financial services requirements. Services offered by other advisors may be more suitable to your specific needs.
- There is no guarantee nor is the intention of this article to establish any sense of assurance, that, if followed, the strategies referenced here will produce a positive or desired outcome. In fact, there is no guarantee or warranty that any of the steps detailed will enable the ability to achieve appropriate, successful, profitable or desired results. The possibility of unfavorable and unsuccessful results is not lessened by the information and strategies made referenced here.
- Hiring and/or working with a qualified financial advisor or financial planner does not guarantee success and does not ensure that a client or prospective client will experience a higher level of performance, results or level of service. No guaranty or warranty is made that any results, projections, or other information being represented directly or indirectly here will be met or sustained.
