Dividing Debt and Divorce: Am I Responsible for My Spouse’s Debt?
Divorce is sometimes referred to as “unwinding” a marriage, because it involves separating two lives that have grown together. Think about it: in a marriage, you may share a home, a social circle, children, assets, and debt. And while your divorce decree won’t tell you which of you gets to hang out with which friends after your divorce, it will deal with all those other things—including debt.
Everyone knows that a divorce divides your property. But many people forget that part of property division is allocating responsibility for debt. That said, just as a divorce doesn’t divide all property that either spouse owns, it also doesn’t divide all debt. Let’s talk about how debt is divided in a Utah divorce, and what debt may not be subject to division in divorce.
How is Premarital Debt Treated in a Utah Divorce?
As a general rule, if you brought debt (like your student loan debt) into your marriage, that debt will still be yours upon divorce. This makes sense, if you think about it, because it mirrors the treatment of assets. If you owned an asset, like a car, when you went into the marriage, that car would be treated as your separate property upon divorce (unless, say, you sold it and put the proceeds in your joint bank account).
So, to the extent you bring debt with you to your marriage, and don’t pay it off during the marriage, that debt stays with you when your marriage is over. The good news, of course, is that the same is true for your spouse. You will not be saddled with your spouse’s premarital debt when you divorce, unless you agree to.
What Happens to Debt Incurred During the Marriage?
Here’s where debt and assets are treated a bit differently. Utah is an “equitable division” state. That means that assets acquired by either spouse during the marriage (with limited exceptions) are considered marital property subject to a fair division upon divorce. That fair division is usually, but not always, roughly equal.
But just because a debt was incurred during the marriage doesn’t mean that it will be divided equally among the divorcing spouses. Debt that was incurred for a family purpose will be divided between the spouses. Examples of debt incurred for a family purpose would be buying a house, furnishings, car, or a family vacation. By contrast, debt incurred by one spouse for their benefit alone would typically be allocated to them in a divorce.
Let’s unpack this a little further, though. If you and your spouse incurred debt for a family purpose, such as to buy a house, does that mean you’re both equally responsible for the mortgage after divorce, even though only one of you gets the house itself? No. Typically, if there is debt associated with an asset, the debt goes with the person who takes the asset. So if you take the house, you get the mortgage; if your spouse takes the SUV, they pay off the car loan.
Remember when we said that debt incurred by one spouse for their benefit, rather than the family’s, is usually the responsibility of that spouse? That’s true—unless the other spouse has agreed to pay for it. If you have a joint credit card account, you have both promised the credit card company to be responsible for that debt. If it’s clear that your spouse used a joint card primarily for their own benefit, you might be able to convince the judge in your divorce that your spouse should be responsible for that debt—but that’s not the end of the story.
Who is Bound By Your Divorce Decree?
Your divorce decree is the “private law of your divorce.” You and your ex-spouse are obligated to abide by it, but no one else is. That includes creditors like a credit card company. If the divorce awards your ex-spouse the $10,000 in MasterCard debt and they fail to pay it, the company could come after you if you also agreed with the company to be liable on the account.
You may wave your divorce decree and shout, “But my ex is responsible for that debt!” That’s true—as between you and your ex-spouse. But the credit card company had an agreement with both of you, and it is entitled to collect from either of you. If you end up paying the credit card bill to save your credit, you can take your ex-spouse to court to get your money back, but how your divorce decree allocates the debt is not the credit card company’s problem.
There is a single exception to the principle that creditors are not bound by a court’s order dividing a couple’s debts. The exception has to do with medical expenses for the couple’s minor child. If a child has received medical services, the provider must honor the court’s division of joint debts if they have notice of the court order.
Do You Have to Let the Court Divide Your Debt?
You don't need to let the court decide how debt will be divided in your divorce. You and your spouse can reach a settlement regarding the issues in your divorce, including debt. If there is a significant amount of debt, you may want to discuss whether it makes sense to file for bankruptcy before divorce. Doing so can allow you both to begin life after divorce with a financial fresh start. You should discuss this option with your divorce attorney to see if it is the best option for you.
If you have other questions about division of debt in a Utah divorce, we invite you to contact Barton Wood to schedule a consultation.