Dividing Debt During Divorce — What’s Fair?

Couple Shaking Hands Making Debt Division Agreement - KM Family Law

Often people will focus on division of property and assets when in the midst of divorce. Debt, however, is also divided during the divorce process. Just like with division of marital property, dividing debt during divorce can have significant consequences for your financial future. Credit cards, medical bills, auto loans, school loans, and mortgages can all be considered marital debt subject to division during divorce. Being equipped with a basic understanding of how marital property and debt is generally divided during divorce can help you prepare for what is coming.

What Debt is Divided in a Minnesota Divorce

Minnesota is an equitable property division state. This means that the law dictates that marital property (assets and debts) should be divided in a manner that is equitable and fair. Before marital property and debt can be equitably divided, we first determine what property and debt will be considered marital (or shared) and what will be considered separate. In general, debt and property acquired during the marriage will be considered marital and that which was acquired before the marriage will be considered separate. There are some exceptions. For instance, student loan debt will often be considered the sole responsibility of the person who took out the loans. Additionally, extremely unreasonable expenses that were kept hidden from the other spouse may very well be considered separate property even though the debt was incurred during the marriage. These types of expenses may include things like:

  • Gambling
  • Illegal drugs
  • Expenses related to an extramarital affair

How Debt and Property are Divided Fairly

Once categorized, all debt and property deemed to be marital should be equitably divided. If categorized as separate, the debt will not be divided and only that spouse who took on the debt will carry the responsibility of repayment. When deciding how to divide marital debt in a way that feels fair to both parties, there are several different factors to consider, including:

  • Who was responsible for incurring the debt?
  • What was the intended purpose of taking on the debt?
  • Which spouse primarily benefitted from the debt?
  • Did the debt provide any benefits to the family or marital relationship?
  • Did both spouses know about the debt?
  • Did both spouses consent to taking on the debt?
  • Is one spouse better situated to repay the debt?
  • What was the length of the marriage?
  • What are the ages and health statuses of the spouses?
  • What are the earning capacities of each spouse?
  • What sources of income are available to each spouse?

Sometimes parties (or a judge if you are in court) may also consider how the division of assets may effect the analysis of how to divide the marital debt. Division of marital debt may offset the value of marital assets in order to achieve a more equitable division of the marital estate as a whole.

Are You Responsible for Your Ex's Debt After Divorce?

It is very important to note, however, that decisions on how to divide debt in the divorce does not bind creditors in any way. The county courts in Minnesota do not have jurisdiction over third party creditors because the creditors are not parties to the divorce action. Practically speaking, this means that both spouses may very well remain on the hook for repayment of a debt regardless of how the divorce decree assigned the debt. The divorce will not release either spouse from a legal obligation to repay a debt. If a debt is assigned to a specific spouse, that spouse fails to make payments, and ends up defaulting on the debt, the creditors may still have the ability to pursue the other spouse for the debt’s repayment.

What If You and Your Spouse Want to Divide Your Debt Yourselves?

Many clients work with collaborative attorneys or a mediator to determine what property and debt is marital and how it will all be divided. Even during the difficult time of divorce, a couple can make the choice to work through the financial decisions that come with divorce. This includes deciding what to do with marital debt. Together a divorcing couple may reach an agreement on how to deal with debt that may involve:

  • Selling assets to pay off a debt;
  • Determining a certain amount that each spouse will be responsible for contributing each month in order to continue making payments on jointly held debt after divorce; and
  • Dividing the debt between themselves and assuming responsibility for the repayment of the debt they are assigned.

Working together with your spouse to reach an amicable resolution to some of the more difficult decisions involved in a divorce can help streamline the entire process and avoid the stress that comes with contention hanging over the process. It can also help in maintaining a good, or at least amicable, relationship between the two of you. This is especially important if there are children resulting from the marriage. That is why trusted Twin Cities divorce professional Kimberly Miller is dedicated to striving towards collaboration in divorce. To ease conflicts and preserve important relationships while being fully informed of the legal process every step of the way is what Kimberly wants for all of her clients.

Contact Kimberly if you'd like to learn more about whether divorce mediation or collaborative divorce might be right for you.