February 16, 2022

You may be prepared to split your assets when filing for divorce, but knowing what will happen to your debt is just as important during the divorce process. Divorce has many financial implications, and it’s a good idea to know and understand what to expect.

Common Law Division vs. Community Property Division

Ohio – along with forty other states – is a common law division state. This means that both assets and debts will be divided equitably, not equally. Debt incurred as a couple will be handled differently than debt incurred separately. The spouse with a higher income may be given more debt to handle, or the spouse given more property will have more debt assigned as well. Fairness and ability to pay will be determined by the court when your debts are divided in a divorce case.

Separate Debt

Debt is considered separate when it was incurred prior to the marriage.  Any debt that is incurred during the marriage is considered to be marital debt, regardless of whether it is in one spouse’s name or both.  The court’s default is that all marital debt will be divided equitably.  However, if one spouse incurred debt without the other’s knowledge or incurred debt on things that are clearly not marital (like a vacation with their new girlfriend or boyfriend) then the court may not divide that debt equitably.  When you are filing for divorce, it is a good idea to get a copy of your credit report to see what debt is held in your name.

Mortgage Debt

Mortgage debt is often the biggest piece of joint debt for many couples. The home will often be held in both names, with both names on the mortgage. If this is the case, the cleanest solution is to sell the house and split the proceeds. Selling and splitting allows both spouses to begin again with a clean slate. However, if one spouse wants to keep the house, the spouse who keeps it will need to buy out the other’s equity and be in a financial position to take over the mortgage alone. Sometimes this may include the spouse who is staying in the home needing to refinance to ensure that only their name remains on the loan and they have the cash available to buy out the equity.

If the house is not held in both names or if the house was purchased before the marriage, the process can be a little more tricky. The court will need to get involved and consider the financial situation of both parties.

The Financial Implications of Filing for Divorce

Car loan debt, medical debt, and even an ex-spouse filing for bankruptcy can all complicate the divorce process. Divorce doesn’t overrule any loan agreements with creditors, so if your name is on any of the debt, you will need to know this and make sure that you understand how your spouse’s actions can impact you. If your ex has debt that you are concerned about, you need to make sure that you are protecting your own credit. Lenders don’t care about your personal situation. The best possible strategy is to pay off any joint debts and dissolve joint accounts before filing for divorce. If that isn’t possible, talk to your lawyer about the best way to split the obligations.

Having a civil relationship with your spouse and hiring an experienced divorce attorney is the best way to handle debt during a divorce. Debt won’t just go away because your relationship has ended, and you need to have a plan on how to handle it. If you’re going through a divorce and need guidance, or are contemplating divorce, please contact my office today.