Dividing Debt in Your Divorce

When settling a divorce, “marital property” does not just refer to assets – it refers to debt, as well. So besides dividing your shared house, car, and other belongings, you’ll be dividing your mortgage, car loans, credit card debt, and educational loans as well.

Ideally, you should try to settle out of court, because when a divorce is litigated, both parties lose control over the outcome and must follow the decisions of the judge. Usually, neither person is really happy with the result. Here at the Law Office and Mediation Services of Elissa C. Goldberg, LLC we offer collaborative law and mediation to help you negotiate an agreement that is fair to both parties and any children involved.

When deciding how to divide debt, divorcing couples and their lawyers or mediators should ask several key questions to guide them:

• When was the debt incurred?
• What was the reason?
• How was it used?
• Whom did it benefit the most?

Apply these questions to each form of debt and negotiate accordingly. Negotiation options could include dividing the debt in an equitable manner (either based on ability to pay or degree of benefit incurred); applying the debt to the spouse who received full benefit from it; giving the asset that carries the debt to one partner who will then be responsible for the full debt; or selling the asset, paying off the debt, and dividing the remaining money equitably.

Auto Loans 

A car loan is an easy example. If one partner wants the car, that spouse should most likely bear the burden of debt, and the loan should be refinanced in the name of that individual if both names are on the loan. If, however, that spouse cannot afford the level of debt alone, or if the car is impractical — for instance, if it is a sports car and the spouse getting the car also has custody of the kids and needs a more serviceable model — the couple could choose to sell the sports car, pay off the debt, and use the remainder to purchase a more functional car.

Mortgages

With a mortgage, the easiest way to discharge the debt is to sell the house, but this is not always practical. Besides the difficulty in selling a house at a fair price, in many cases one spouse makes significantly less money than the other, making it very difficult for that spouse to afford decent housing. Additionally, the upheaval can be very harmful to children, who are already suffering from the divorce. Therefore, it’s often beneficial to negotiate other assets in return for one partner retaining the house. Again, the other spouse would need to be removed from the mortgage agreement.

Credit Card Debt

Credit card debt is best divided according to what items were purchased, by whom, and whom they benefited. Differing attitudes towards the use of money are a common cause of divorce. Therefore, in many cases, one person is responsible for more of the purchases than the other. The one who has purchased more and benefited more from the items purchased could reasonably be expected to carry more of the debt. When items benefit both partners or the family as a whole, it is reasonable to split the debt equitably.

Educational Loans

Educational debt seems straightforward but can actually be complicated. If the debt was incurred before the couple married, one can argue that it belongs solely to the spouse who was educated. However, if the education ensured a high quality of life for the couple, one could argue that part of the debt should be assigned to the other spouse based on the benefits he or she gained. This would also follow for educational debt incurred after the couple was married. With regard to debt incurred for a child’s education, the ability of each parent to pay should be taken into consideration when negotiating the division of this debt.

Divorce is always difficult, but at the Law Office and Mediation Services of Elissa C. Goldberg, LLC we have found that the methods of mediation and collaborative law help to significantly decrease the stress and emotional strain. We work with divorcing couples to fairly negotiate the division of assets and debts in a way that neither burns bridges nor harms either spouse or children. Contact us to see how we can do this for you.