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Who Pays Off Debts After a Divorce?

On Behalf of | Jun 19, 2020 | Family Law

When a couple divorces, responsibility for paying off debts is usually based on marital or individual liability for the debts. In some cases, one spouse may be liable for the other spouse’s debts.

Paying Off Debts After Divorce

When filing for divorce, it is important for both spouses to meet with divorce lawyers who can provide legal assistance with debt liabilities. Responsibility for payment of debts after divorce will be stipulated in the final divorce decree issued by the court.

While some states consider assets and debts that each spouse brings into the marriage, other states consider everything to marital property that is divided equally in a divorce. In Indiana, the law is based on equitable distribution, which allows the court to determine a fair arrangement for each spouse regarding a share of the marital estate.

Mortgage Debts

Most home mortgages are titled in both spouses’ names, which makes each spouse responsible for the debt. In some cases, mortgage debt may be assigned to the spouse with the higher income, or to the spouse who is awarded full custody of the children.

If one spouse wants to remain in the home after divorce and continue to make monthly mortgage payments, that spouse will be required to buy out the other spouse’s equity in the home. A divorce lawyer can help with monetary calculations on equity in the home and make sure that the title reflects accurate information once the divorce is finalized.

Auto Loan Debts

When both names are on an auto loan, as a borrower or co-signer, both spouses are held responsible for any default, late fees or collection costs. If one spouse wants to keep the car, he/she can try to refinance the car in his/her name only. If the lien holder will not approve a refinance, selling the car may be the next best option.

Medical Debts

In Community Property States, a spouse will be responsible for his/her partner’s medical debts. In Equitable Distribution States, like Indiana, the court determines whether a couple was living together when the medical debt was acquired, as well as potential impact of the debt on any children.

Credit Card Debts

Most states consider any debt accumulated during the marriage to marital property, regardless of whose name appears on the account. Both spouses will likely be held responsible for joint credit card debt in a divorce, but not for a spouse’s individual credit card debt.