What Happens to Debt During a Divorce?

What Happens to Debt During a Divorce?

According to data, married consumers carried a total average debt of $112,627. That’s a sobering thought when you’re heading into a divorce. What happens to all that debt? Will you be stuck with your partner’s financial responsibilities? It’s a common concern, especially if your partner has significant loans, credit card debt, or other financial obligations.

At SAM LAW OFFICE, LLC, we know these matters are sensitive and complex, which is why we’re sharing critical insights to help you move forward with confidence. Here’s what you need to know about how debt is handled during a divorce in Illinois.

Marital vs. Individual Debt

The first step in understanding debt division during a divorce is to distinguish between marital debt and individual debt.

• Marital Debt: This refers to any debts incurred by either spouse during the marriage for the benefit of the household or both spouses. Examples include joint auto loans, mortgages, or a shared credit card balance used for family expenses or shared purchases.
• Individual Debt: Debts incurred before marriage or not benefiting both parties qualify as individual debt. For example, a student loan taken out before marriage is likely to remain the responsibility of the borrower, provided it didn’t contribute significantly to the marital household.

It is important to understand that you will not be held responsible for each other’s individual debt; these remain the sole responsibility of the party who incurred them. However, marital debt will need to be divided or managed jointly as part of the divorce process, ensuring a fair resolution that reflects the financial realities of both spouses.

Your Options for Handling Debt in Illinois

If you and your spouse can collaborate to create your own plan for handling debt, it is often the most effective and least stressful approach. Open communication and joint decision-making can help ensure a fair agreement that satisfies both parties. Below, we’ll explore some of the options available for managing marital debt during the divorce process.

Paying Off Debt

Paying off marital debt before finalizing a divorce is one of the simplest and cleanest approaches. It allows both parties to start fresh and prevents future disputes over payments.

Advantages:

• Provides certainty and clarity in financial matters.
• Avoids the risk of your credit being affected by your ex-spouse’s missed payments.
• Offers a fresh start post-divorce.

Settlement proceeds, such as the sale of a family home, are often used to pay joint debts. While this approach requires financial resources upfront, it eliminates long-term liability.

Sharing Debt

Some couples choose to continue sharing responsibility for marital debt after a divorce, which usually applies to joint loans or accounts. For example, both parties may agree to continue making payments toward a shared auto loan or mortgage.

Pros:

• Avoids the immediate need for large sums of money to pay off debts.

Cons:

• Shared debt leaves you vulnerable to your ex-spouse’s decisions. If they fail to make a payment or default entirely, it could harm your credit.

It’s essential to lay out clear terms for such agreements, ideally enforcing them legally through the divorce decree.

Dividing Debt

Another common option is to allocate specific debts to each party. For instance, one spouse may take responsibility for the car loan while the other takes on a credit card balance.

Advantages:

• Provides autonomy, as each individual manages the debt allocated to them.
• Reduces the risk of credit issues tied to your ex-spouse’s actions.

Still, creditors aren’t bound by divorce decrees, meaning they may pursue either party if one defaults. Therefore, refinancing joint loans or transferring credit card balances to separate accounts is a prudent step.

When the Courts Decide

If you can’t agree, the courts will divide the debts according to the state’s equitable distribution laws. These laws state that marital debt (like property) is divided “fairly” rather than equally. The courts consider various factors to determine what “fair” looks like.

Length of the Marriage

The length of your marriage often influences how debt is divided. Longer marriages tend to see a more equal division of debt because both parties are more likely to have benefited from shared expenses or financial resources. Shorter marriages may result in individual debts being retained by the party who incurred them.

Spending Habits

Debt division also depends on how and why the debt was accrued. For instance:

• Debt for shared household expenses or family vacations is typically split.
• If one spouse took out a loan or accrued debt on extravagant purchases for personal use, Illinois courts may allocate that debt solely to them.

Being transparent about your financial history and providing evidence can help ensure a fair outcome.

Financial Circumstances

The income and financial stability of each party also play a role. For example, a higher-earning spouse may be better positioned to take on a larger portion of the marital debt. This factor underscores the importance of presenting clear documentation of your financial circumstances during divorce proceedings.

Why You Need Legal Counsel During Debt Division

Debt division in divorces is rarely simple, and attempting it without legal counsel can lead to costly mistakes. Consulting an experienced Illinois divorce attorney is critical to protecting your financial future. Attorneys can guide you through:

• Distinguishing marital vs. individual debt.
• Negotiating fair agreements for paying or dividing debts.
• Refinancing or restructuring debts to prevent future liability.

Safeguard Your Financial Future Today

Dividing marital debt can feel almost as daunting as dividing assets, but understanding your options and working with a qualified attorney can significantly ease the process. Whether you’re making payments on a joint mortgage or negotiating the responsibility of shared credit card debt, SAM LAW OFFICE, LLC is here to provide guidance. Contact us today —your path to a fair resolution starts here.