Author: Holly Johnson / Source: Wise Bread
When you consider that 40-50 percent of marriages in the U.S. end in divorce, it shouldn’t surprise you that some marriages end in a financially messy way. Marriage typically involves the joint payment of debts just as it involves collecting joint assets, and everything — both assets and debts — must be distributed in some way when a couple calls it quits.
(See also: How to Protect Yourself Financially During Divorce or Separation)Community property vs. common law states
In a lot of ways, what happens to your debts and assets depends on where you live. If you reside in one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) or “opt in” for community property in the state of Alaska, then all debts accumulated during a marriage are the responsibility of both parties no matter how they were held. This means that if your spouse ran up a secret credit card balance during your marriage, that debt is your responsibility as well as theirs in a community property state.
If you live in one of the remaining states, then you live in an equitable distribution state (also known as a common law state). Typically, this means that debt incurred during a marriage is the responsibility of both parties, if both parties were joint owners of an account. If one spouse opens an account in their name only, on the other hand, that debt is their sole responsibility.
What happens to debt incurred during separation?
Note that debt incurred after a couple separates may be treated differently than debt incurred during a marriage.
Your liability for such debt usually depends on your state, whether you took out the debt jointly or separately, and whether the debt was used for, say, a spending spree in Las Vegas or necessities for your children such as food and rent.Since the moment of separation is figured differently in different states, the cutoff for new debt can also vary. In some states you need to legally separate while others consider the moment of separation as starting when you begin living apart. (See also: How to Manage Your Money During a Spousal Separation)
How are debts divided when you divorce?
Sally Boyle, a certified divorce financial analyst and author of Deconstructing Divorce, says that no matter whether you live in a community property or equitable distribution state, debts are divided along with assets during a divorce. This means the court system that handles your divorce will help you figure out ways to split your debts equally and fairly. (See also: 5 Money Moves to Make the Moment You Decide to Get Divorced)
Credit card debt
If a couple has credit card debt that is jointly held, for example, both spouses can try to move the debt into two separate accounts.
“The challenge with joint debt is going back to the lender to split the debt up,” says Boyle. It’s possible your credit card issuer may not want to help you move part of the debt into a new account in one spouse’s name, although they will usually cooperate if both spouses have good enough credit to qualify for an account on their own.
As an alternative, Boyle says a balance transfer card can be a good way to split up credit card debt if at least one spouse can get…
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