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.
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.
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.
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.
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.
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.
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.
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.
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.
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