Splitting Unsecured Debts During a Divorce

How debts are divided can have a huge post-divorce impact on both parties.  Therefore, it's critical to have a plan in place that will protect your financial situation. 

Division of Debts In Community Property States

Division of assets and debts is handled differently in community property states than in equitable distribution states. In community property states, all property acquired during the marriage is owned in common by the parties, with each having an undivided one-half interest in that property by virtue of the martial relationship.  Debt is treated in much the same way unless it can be proven that the party who incurred the debt did not intend for both spouses to be responsible for that particular debt.  In community property states, there is a presumption that both spouses are jointly liable for all debts, both secured and unsecured, created during the marriage even if a given debt is only in one spouse's name.

Division of Debt in Other States

In states that are not community property states, assets acquired and debts or incurred during the marriage are subject to equitable division (also known as equitable distribution).  This means that the assets and debts will be divided fairly, but not necessarily equally, between the spouses.  In making an equitable division of assets and debts, courts may examine various factors, including:

• The conduct of the parties during the marriage;
• The present and future earning capacity of each spouse;
• The age of the parties;
• The health of the parties;
• The length of the marriage;
• The needs of the parties and their children;
• The contributions, both financial and otherwise, of each spouse to the marriage; and
• Any agreements between the parties.

Common Unsecured Debts

Unsecured debts are debts which are not secured by collateral.  Examples of unsecured debts which may be split in a divorce are:

• Credit Card Debt;
• Medical Bills;
• Signature Loans; and
• School Tuition Bills.

Common Disputes Over Unsecured Debts

One of the most common disputes which may arises over division of debts in a divorce case is whether the debt was actually incurred for the benefit of the family or household versus for the benefit of one spouse.  Where a debt was incurred for the benefit of one spouse rather than for the family, courts typically make that spouse solely responsible for that debt.

Disputes may also arise over whether a debt is a joint debt.  Generally, if both spouses sign for a loan, they are jointly and severally liable for the debt.  This means that the creditor may collect 100% of the debt from either spouse.  In some instances, one spouse may accuse the other of having forged his or her name to the loan agreement.  If forgery is proven, the guilty spouse will be ordered to pay the debt in full.  

If you have debts and are planning to divorce or are already in the process of getting divorced, you should consult with an experienced divorce attorney.  A divorce attorney will review your assets and liabilities and, if necessary, retain a forensic accountant to review your bank statements, credit card statements, and other financial documentation to determine how money has been spent during the marriage and whether any cash or other assets have been hidden from you by your spouse.